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Marketing Document Transcript

  • 1. Marketing E-528-529, sector-7, Dwarka, New delhi-110075 (Nr. Ramphal chowk and Sector 9 metro station) Ph. 011-47350606, (M) 7838010301-04 www.eduproz.inEducate Anytime...Anywhere..."Greetings For The Day"About EduprozWe, at EduProz, started our voyage with a dream of making higher education available for everyone. Since itsinception, EduProz has been working as a stepping-stone for the students coming from varied backgrounds. The bestpart is – the classroom for distance learning or correspondence courses for both management (MBA and BBA) andInformation Technology (MCA and BCA) streams are free of cost. Experienced faculty-members, a state-of-the-art infrastructure and a congenial environment for learning - are the fewthings that we offer to our students. Our panel of industrial experts, coming from various industrial domains, leadstudents not only to secure good marks in examination, but also to get an edge over others in their professional lives.Our study materials are sufficient to keep students abreast of the present nuances of the industry. In addition, we giveimportance to regular tests and sessions to evaluate our students’ progress. Students can attend regular classes of distance learning MBA, BBA, MCA and BCA courses at EduProz withoutpaying anything extra. Our centrally air-conditioned classrooms, well-maintained library and well-equipped laboratoryfacilities provide a comfortable environment for learning.Honing specific skills is inevitable to get success in an interview. Keeping this in mind, EduProz has a careercounselling and career development cell where we help student to prepare for interviews. Our dedicated placementcell has been helping students to land in their dream jobs on completion of the course.EduProz is strategically located in Dwarka, West Delhi (walking distance from Dwarka Sector 9 Metro Station and 4-minutes drive from the national highway); students can easily come to our centre from anywhere Delhi andneighbouring Gurgaon, Haryana and avail of a quality-oriented education facility at apparently no extra cost.EDUPROZ Page 1
  • 2. MarketingWhy Choose Edu Proz for distance learning? • Edu Proz provides class room facilities free of cost. • In EduProz Class room teaching is conducted through experienced faculty. • Class rooms are spacious fully air-conditioned ensuring comfortable ambience. • Course free is not wearily expensive. • Placement assistance and student counseling facilities. • Edu Proz unlike several other distance learning courses strives to help and motivate pupils to get high grades thus ensuring that they are well placed in life. • Students are groomed and prepared to face interview boards. • Mock tests, unit tests and examinations are held to evaluate progress. • Special care is taken in the personality development department. "HAVE A GOOD DAY"EDUPROZ Page 2
  • 3. Marketing Karnataka State Open University(KSOU) was established on 1st June 1996 with the assent of H.E. Governor of Karnatakaas a full fledged University in the academic year 1996 vide Government notificationNo/EDI/UOV/dated 12th February 1996 (Karnataka State Open University Act – 1992).The act was promulgated with the object to incorporate an Open University at the State level forthe introduction and promotion of Open University and Distance Education systems in theeducation pattern of the State and the country for the Co-ordination and determination ofstandard of such systems. Keeping in view the educational needs of our country, in general, andstate in particular the policies and programmes have been geared to cater to the needy.Karnataka State Open University is a UGC recognised University of Distance Education Council(DEC), New Delhi, regular member of the Association of Indian Universities (AIU), Delhi,permanent member of Association of Commonwealth Universities (ACU), London, UK, AsianAssociation of Open Universities (AAOU), Beijing, China, and also has association withCommonwealth of Learning (COL).Karnataka State Open University is situated at the North–Western end of the Manasagangotricampus, Mysore. The campus, which is about 5 kms, from the city centre, has a sereneatmosphere ideally suited for academic pursuits. The University houses at present theAdministrative Office, Academic Block, Lecture Halls, a well-equipped Library, Guest HouseCottages, a Moderate Canteen, Girls Hostel and a few cottages providing limitedaccommodation to students coming to Mysore for attending the Contact Programmes or Term-end examinations.EDUPROZ Page 3
  • 4. Marketing E-528-529, sector-7, Dwarka, New delhi-110075 (Nr. Ramphal chowk and Sector 9 metro station) Ph. 011-47350606, (M) 7838010301-04 www.eduproz.inEducate Anytime...Anywhere..."Greetings For The Day"About EduprozWe, at EduProz, started our voyage with a dream of making higher education available for everyone. Since itsinception, EduProz has been working as a stepping-stone for the students coming from varied backgrounds. The bestpart is – the classroom for distance learning or correspondence courses for both management (MBA and BBA) andInformation Technology (MCA and BCA) streams are free of cost. Experienced faculty-members, a state-of-the-art infrastructure and a congenial environment for learning - are the fewthings that we offer to our students. Our panel of industrial experts, coming from various industrial domains, leadstudents not only to secure good marks in examination, but also to get an edge over others in their professional lives.Our study materials are sufficient to keep students abreast of the present nuances of the industry. In addition, we giveimportance to regular tests and sessions to evaluate our students’ progress. Students can attend regular classes of distance learning MBA, BBA, MCA and BCA courses at EduProz withoutpaying anything extra. Our centrally air-conditioned classrooms, well-maintained library and well-equipped laboratoryfacilities provide a comfortable environment for learning.Honing specific skills is inevitable to get success in an interview. Keeping this in mind, EduProz has a careercounselling and career development cell where we help student to prepare for interviews. Our dedicated placementcell has been helping students to land in their dream jobs on completion of the course.EduProz is strategically located in Dwarka, West Delhi (walking distance from Dwarka Sector 9 Metro Station and 4-minutes drive from the national highway); students can easily come to our centre from anywhere Delhi andneighbouring Gurgaon, Haryana and avail of a quality-oriented education facility at apparently no extra cost.EDUPROZ Page 4
  • 5. MarketingWhy Choose Edu Proz for distance learning? • Edu Proz provides class room facilities free of cost. • In EduProz Class room teaching is conducted through experienced faculty. • Class rooms are spacious fully air-conditioned ensuring comfortable ambience. • Course free is not wearily expensive. • Placement assistance and student counseling facilities. • Edu Proz unlike several other distance learning courses strives to help and motivate pupils to get high grades thus ensuring that they are well placed in life. • Students are groomed and prepared to face interview boards. • Mock tests, unit tests and examinations are held to evaluate progress. • Special care is taken in the personality development department. "HAVE A GOOD DAY"EDUPROZ Page 5
  • 6. Marketing Karnataka State Open University(KSOU) was established on 1st June 1996 with the assent of H.E. Governor of Karnatakaas a full fledged University in the academic year 1996 vide Government notificationNo/EDI/UOV/dated 12th February 1996 (Karnataka State Open University Act – 1992).The act was promulgated with the object to incorporate an Open University at the State level forthe introduction and promotion of Open University and Distance Education systems in theeducation pattern of the State and the country for the Co-ordination and determination ofstandard of such systems. Keeping in view the educational needs of our country, in general, andstate in particular the policies and programmes have been geared to cater to the needy.Karnataka State Open University is a UGC recognised University of Distance Education Council(DEC), New Delhi, regular member of the Association of Indian Universities (AIU), Delhi,permanent member of Association of Commonwealth Universities (ACU), London, UK, AsianAssociation of Open Universities (AAOU), Beijing, China, and also has association withCommonwealth of Learning (COL).Karnataka State Open University is situated at the North–Western end of the Manasagangotricampus, Mysore. The campus, which is about 5 kms, from the city centre, has a sereneatmosphere ideally suited for academic pursuits. The University houses at present theAdministrative Office, Academic Block, Lecture Halls, a well-equipped Library, Guest HouseCottages, a Moderate Canteen, Girls Hostel and a few cottages providing limitedaccommodation to students coming to Mysore for attending the Contact Programmes or Term-end examinations.EDUPROZ Page 6
  • 7. MarketingUnit-1-Introduction to MarketingIntroduction:Marketing is an activity which can be seen every where. Any time you try to buy something,marketing has a role to play. It is often viewed by many as being advertising or sales promotionor marketing research. But it is a concept much larger than any of them or all of them puttogether. Marketing consists of all activities designed to create exchanges which satisfy humanor organizational needs or wants in a way that brings profit for the firm. It performs the task ofboth identifying and satisfying customer needs. This helps business enterprises in anticipatingcustomer demand and creating satisfied customers through conception, production, promotionand physical distribution of goods and services. No example can better illustrate this than thepopularity of Mobile Phone. In less than fifteen years, mobile phones have become such animportant part of our lives that many of us cannot think of a life without it.This unit deals with meaning, importance and functions of marketing. The old concepts ofmarketing under which companies have conducted marketing activities and the modern conceptswhich are now being used are explained in detail.Learning Objective 1: Define market and marketing.Market and MarketingWhat is Market?Originally, a “Market” was a public place in a town or village, where household provisions andother objects were available for sale. The definition of market has expanded in this globalizedworld. The traders may be spread over a whole town, or city or region or a country and yet forma market. For example, stock market, Oil & Oilseeds market, Steel or Metals market etc wherepeople across the countries can participate in the business. The essentials of a market are (i) acommodity / item which is dealt with, (ii) the existence of buyers and sellers, (iii) a place; be it acertain region, a country or the entire world and (iv) interactions between buyers & sellers tofacilitate transactions. 1. On the basis of Geographic Area –Local Market is the place where the purchase and sale of goods / services involve buyers andsellers of a small local area. The example of local market is a village or a town, market. In thismarket day to day requirement like vegetable, fruits, meat and fish are sold.Regional Market –EDUPROZ Page 7
  • 8. MarketingWhen the purchase and sale of goods involve buyers and sellers of a region, such as a large townmarket catering to needs of a group of villages or towns, such a market is common in case ofwholesale / retail sale of food grains.National Market –When the purchase and sale of goods involve both buyers and sellers of the entire nation then itis called as national market. This type of market in the case of commodities such as Cotton &Textiles Market located in Mumbai, Tea and Jute Markets located in Kolkata. With the advent ofinternet, this concept is also getting obsolete, as you can operate in any market, sitting in yourtown or city.Global or World Market –When the purchase and sale of goods involve buyers and sellers of many nations, there is said tobe a World or Global Market. Many commodities such as Gold, Silver, Tea, Coffee, Spices aresold in such global markets. Many manufactured products and specialized services are also soldacross the globe by many companies. Producers of Coca-cola and Sony brand sell their productsin the global market in almost all countries. Indian companies like TCS, Infosys, and WIPROsell and provide their IT enabled services to many companies in different parts of the world.They operate in a Global Market. 1. On the basis of Nature of Competition in the market –Perfect Market –It refers to a market or market situation where there is perfect competition. Competition is said tobe perfect when (a) the sellers & buyers of a particular product are so many that none of themhave to sell or buy at a single uniform price. (b) Price is determined by the market forces ofsupply & demand.Imperfect Market –In contrast to the perfect competition, the imperfect market will have imbalance between numberof buyers and sellers. This market is further divided into three parts. They are Monopoly,Monopolistic and oligopoly. In case of monopoly, single seller dominates the entire marketwhere as in oligopoly few sellers dominate the market. The details of these types of markets willbe discussed in the pricing unit. 1. On the basis of Nature of Goods Sold –Consumer Goods Market –Definition: A Consumer Goods Market is defined as a market where the final output of the firmgoes for the consumption of individual or household.EDUPROZ Page 8
  • 9. MarketingConsumer Goods Market –This is a market, where the buyers who are individuals and households purchase a variety ofproducts and services to satisfy their needs and wants. For example, an individual buys achocolate for his personal consumption whereas a family buys a refrigerator for household orfamily consumption. Products sold in consumer goods market are classified as Non-Durables,such which are frequently purchased such as bathing soap, detergent etc. and Durables such asrefrigerator, TV Set, Washing Machine, Car, Clothing etc. Non-Durables are also known asFMCG – Fast Moving Consumer Goods e.g. Soap, detergent etc…Industrial Goods Market –Definition: A business market is defined as a market where output of one firm goes either as rawmaterial, goods in process or as consumables of another industry.This market is also known as organizational or B 2 B market. It is made up of organizationsincluding manufacturing units, service firms, government departments and other businessenterprise. The products which are sold in the industrial goods market are typically, rawmaterials, machines, machine tools, equipments, components and spares etc. Generally, thebuyers of industrial goods, purchase products and services either for producing other productsand services which can be sold in the consumer markets or for using them to facilitate theoperation of business enterprise. In many such cases, the buyer is an organization whoseconsumption will depend on how the end user’s demand will change. Hence, in businessmarkets, the demand is a derived demand. Demand for steel will depend on the consumption ofsteel equipments, rods and other accessories in the construction and real estate sector.Non-Profit and Government Markets –This market which consists of Non-Profit organizations such as social-service agencies,educational organizations, charitable organizations and Government Departments and agenciesneeds special skills to sell to them. These buyers have limited purchasing power which is whypricing to this market needs to be planned carefully. Government, which is a large buyer, makespurchases on the basis of tenders, bids and negotiation.What is Marketing?Marketing is a set of business activities that facilitate movement of goods and services fromproducer to consumer. It is an ongoing process of discovering and translating consumer needsinto products and services, creating demands for them, serving the customer and his demandthrough a marketing programme of promotion and distribution to fulfill the company’s marketinggoals in a competitive environment.It is evident that customer, his needs and wants are very important aspects of today’s marketing.Customer focus is the very essence of marketing and his viewpoints should be taken into accountwhile making marketing decisions.EDUPROZ Page 9
  • 10. MarketingIn this era of rapid changes, it is marketing which keeps the business in close contact with itseconomic, political, social and technological environment and informs it of events and changesthat can influence its activities.American Marketing Association (AMA) offers the following definition of Marketing.( AMA2004)Definition: Marketing is an organization function and a set of process for creating,communications and delivering value to customers and for managing customer relationships inways that benefit the organization and its stake holders.The Chartered Institute of Marketing defines Marketing as:Marketing is the management process responsible for identifying, anticipating and satisfyingcustomer requirements, profitably.Having understood what a Market is and what is Marketing, we will now look what is anexchange and the exchange process.The Exchange ProcessToday’s marketing system has evolved from the time of a simple barter of goods through thestage of a money economy to today’s complex marketing. Throughout all these stages,exchanges have been taking place. In small town and villages there were artisans such ascarpenters, weavers, potters blacksmiths, barbers and others such service providers whoproduced goods and services not only for their own consumption but also for exchanging withothers what they could not produce but needed. This was barter system of exchange. For atransaction to take place between two parties, it was necessary that there be needs and wants onboth sides. The development of money came to act as a common medium, and the exchangeprocess became very easy and convenient.Fig.1.1. below shows the exchange process undermoney economy in which products and services flow to the market from the producers andsellers and money, the value of the products and services, flow from the buyers to the sellers.Figure 1.1Thus, exchange is an act of obtaining a desired product or service from someone by offeringsomething in return. This exchange process will continue as long as human society existsbecause satisfying one’s needs is the basic instinct of human beings and no one can produceeverything that he /she needs. For an exchange process to take place, between two or moreparties, few conditions have to be met. They are:EDUPROZ Page 10
  • 11. Marketing • Each party has something that could be of value to other party. • Each party has desire, willingness and ability to exchange. • Each party is capable of communicating and delivering. • Each party has the freedom to accept or reject the offer.Learning Objective 2- Understand the concepts and functions of marketing.Core ConceptsThere are certain fundamental concepts and tasks which one needs to know to fully understandthe marketing function. These concepts provide foundation for a marketing orientation and tomanage the marketing function. 1. Needs and WantsThe marketer’s task lies in satisfying human needs and wants through the exchange process. It isalleged that “marketing creates needs” and makes people buy things they do not actually need. Inreality, marketing or marketers do not create “needs”, but they create “wants”. Needs are thebasic human requirements of food, clothing shelter water and air. When we desire certainspecific objects or items to fulfill these needs, they are called wants. For example, when a personis hungry, he can satisfy his hunger by taking a simple meal at home. Instead, if he wants to eat aPizza or a Hamburger or a 5-Star Hotel meal, it is not a ‘need’ but a ‘want’.The task of a marketer is to influence our wants rather than needs. He does so along with otherinfluential such as socio-cultural forces and institutions such as family, religion, and differentreference groups.Marketers, suggest to consumers that a particular car would satisfy the person’s need for esteem.They do not create the need for esteem, but try to point out how a particular product wouldsatisfy that need. 1. DemandHuman wants are unlimited, but their resources are limited. When a want for an object is backedor supported by buying ability, willingness to spend and desire to acquire a product / service, itbecomes a potential demand. The task of assessing or estimating demand is very crucial for amarketer. He should understand the relationship of the demand for his product with its price.Demand forecasting is essential for allocation of resources in a company. 1. Product and ServicesEDUPROZ Page 11
  • 12. Marketing‘Product is a generic term used to describe what is being offered by a seller or marketer. It maybe a good, a service or idea, which can be marketed by offering a set of benefits it offers tocustomers to satisfy their needs. However, there is a distinction between products and services.When we say ‘product’ we mean a physical or a tangible product such as a tooth paste, arefrigerator or a mobile phone, whereas ’service’ refers to an act, performance, a benefit andindicates intangibility and absence of ownership or possession. Services can include bankingservice, hospitality service, airlines service, health service, entertainment service etc. Thus, aproduct can be defined as anything that can be offered to market to satisfy a need or want.Today, many types of entities such as goods, services, experiences, events, persons, places andideas are being marketed. 1. Target MarketVery few products can satisfy everyone in the market. Therefore, marketers divide the marketinto distinct groups of buyers who have similar preferences. These groups are called segmentswith their own specific demographic, psychographic and behavioral characteristics. The marketerdecides as to which of these segment or segments offer highest opportunity for his company. Foreach of these target markets, the firm develops a product / service suited to their needs. TATAgroup has recently designed an economy car called ‘NANO’ is priced around Rs.1 Lakh. Thetarget market for this car is all aspirants who dream of owning a car but cannot afford cars whichare now available for minimum Rs.2.5 Lakh. A Target Market is the group of people at whom amarketer targets his marketing efforts to sell his goods and services. 1. Marketing ManagementMarketing Management which is also the title of this course refers to all the activities which themarketing managers, executives and personnel have to undertake to carry out the marketingfunction of the firm. It involves (i) analyzing the market opportunities by under taking consumerneeds and changes taking place in the marketing environment, (ii) planning the marketingactivities, and (iii) implementing marketing plans and settings control mechanism to ensuresmooth and successful accomplishment of the organizations goals. Marketing Management is acritical function, especially in highly competitive markets. It provides competitive edge to anorganization through strategic analysis and planning. 1. Values and SatisfactionIn developed and developing economies, consumers have several products or brands to choose tosatisfy his/her need. Consumers’ perceptions about value that they can expect from differentproducts or services depend upon several factors. Sources that build the customer expectationsinclude own experience with products, friends, family members, consumers’ reports andmarketing communications. Customer value is the difference between total benefits received andtotal costs incurred by him in acquiring the product or services. The types of benefits could beproduct’s functional value, or its brand related image value and any accompanying service value.The types of costs a customer can incur may be monetary cost and energy cost.EDUPROZ Page 12
  • 13. MarketingValue is primarily a function of quality, service and cost. Value increases with increase in qualityand service and decreases with increase in cost. Value is an important marketing concept and thetask of marketing is to identify, create, communicate, deliver and monitor customer value. �Customers generally experience satisfaction when the performance level meets minimumperformance expectations of a product or service. When the performance as perceived exceedsthe expected performance level, the customer will be not just satisfied, but delighted. Thuscustomer satisfaction or delightment with respect to a product or service encourages customers tocome back and repurchase the product or service in future. Satisfied customers can be an asset tothe marketing company over a period of time, as they will spread favorable word-of-mouthinformation or opinions.Functions Of MarketingThe delivery of goods and services from producers to their ultimate consumers or users includesmany different activities. These different activities are known as marketing functions. Differentthinkers have described these functions in different ways. Some of the most important functionsof marketing are briefly discussed below:- 1. Marketing Research and Information ManagementMarketers need to take decisions scientifically. Marketing research function is concerned withgathering, analyzing and interpreting data in a systematic and scientific manner. The types ofmarket information could be analysis of market size and characteristics, consumer tastes andpreferences and changes in them from time to time, channels of distribution and communicationand their effectiveness, economic, social, political and technological environment and changestherein. A company can procure such information from specialized market research agencies,government or can decide to collect themselves. 1. Advertising and Sales Promotion – Advertising is a mass media tool used to inform, persuade or remind customers about products or services. It is an impersonal message targeted at a chosen group through paid space or time. 2. Sales Promotion is a short-term incentive given to customers or intermediaries to promote sales. It supplements advertising and personal selling and can be used at the time of launching a new product or even during its maturity period. 3. Product Planning and Management – A Marketer should identify the needs and wants of consumers, develop suitable products / services and make them available. Marketer is also required to maintain the product and its variations in size, weight, package and price range according to the changing needs and requirements of his customers. Information available through Market Research helps product management in taking appropriate decisions while planning the marketing efforts. 4. Selling – This function of marketing is concerned with transferring of products to the customer. An important part of this function is organizing sales force and managing their activities. Sales force management includes recruitment, training, supervision, compensation and evaluation of salesmen. They need to be assigned targets and territories where they can operate. The salesmen interact with prospective purchasersEDUPROZ Page 13
  • 14. Marketing face-to-face in order to sell the goods. The purchaser may be end customer or an intermediary, such as a retailer or a dealer. 5. Physical Distribution – Moving and handling of products from factory to consumers come under this function. Order processing, inventory, management, warehousing and transportation are the key activities in the physical distribution system. 6. Pricing – This is perhaps the most important decision taken by marketer, as it is the only revenue fetching function and success and failure of the product may depend upon this decision. Therefore, the decision regarding how much to charge should be taken such that the price is acceptable to the prospective buyers and at the same time fetches profits for the company. While deciding on the price, the factors to be considered are competition, competitive prices, company’s marketing policy, government policy, and the buying capacity of target market etc.Learning Objective 3: Explain the importance of marketing.Importance Of Marketing.Peter Drucker, the famous management thinker in one of his classic articles has said “Marketingis everything”. All other activities in the organization are support services to the marketingstrategy that the company pursues. Marketing is important not only to the company but to theconsumers and society and to the economy.Consumer stands to benefit from marketing activities. He has more alternatives to choose from,improved and better quality products are available and he is able to buy goods at convenientlocations. Thanks to much improved customer service, a consumer is able to complain andexpects his complaint to be attended in reasonable time. He can now buy with credit or debit cardor cash or on installments.For the society as a whole, marketing is important because it acts as a change agent makingpeople use latest products and improves the standard of living of the people. As we know, themain objective of marketing is to produce products and services for the society as per their needsand tastes, and while doing so it creates demand for these goods and services, encourages themto use them, thus leading to higher demand and sales. This higher demand allows the company toachieve economies of scale in both production and distribution resulting in decrease inproduction and distribution costs which can be used to reduce prices to consumers.For a company in any business, marketing is considered to be the most important activity. Ithelps an organization to keep abreast of changes taking place in the market and consumer tastesand preferences through market research. Based on this reliable data, it responds to these changesby rectifying any drawbacks in its products or changing its competitive strategy. Thus thecompany’s decision- making and planning are not based on just hunches but on sound marketinformation. The firm that follows such practices is sure to prosper under all conditions.EDUPROZ Page 14
  • 15. MarketingMarketing provides an effective channel of communication to the company with its consumersby way of advertising and sales promotion. Marketing thus brings revenue and earns goodwillfor the company.Successful operation of marketing activities creates, maintains and increases the demand forgoods and services in the economy. It results in the increased level of production. This, in turn,increases the national income, which is beneficial to the economy. Marketing operations requirethe services of intermediaries such as wholesalers, retailers, transporters, and service provides forstorage, finance, insurance and advertising. These services provide employment in largenumbers.Learning objectives 4: Differentiate between types of marketing orientations.Marketing OrientationsCompanies adopt different philosophies to market their products and services. An analysis ofevolution of marketing thought over last several decades and reliance of marketing managers onspecific marketing orientations, leads us to classify marketing concepts into several categories.These categories reflect the philosophies guiding the company’s marketing efforts. Thephilosophy adopted by a company should strike a balance between the interests of the company,customers, society and public. There are five competing concepts and an organization can chooseany one of them for conducting marketing activities. 1. The Production Concept – This is one of the oldest concepts of marketing and assumes that consumers will prefer those products and services that are easily available and affordable. Companies which adopt this philosophy for their marketing should focus on improving production and distribution efficiency. Production concept is a useful philosophy under situations where demand is more than supply and the companies are trying to increase production and when production costs are high. Companies are trying to achieve economies of scale. Under such conditions, it is likely that quality of products is neglected and service to customers is very impersonal. 2. The Product Concept assumes that consumers will prefer those products that offer quality, performance or innovative features. Managers in such companies focus on developing superior products and improving the existing product lines by devoting time to innovations. The problem with this orientation is that managers forget to read the customer’s mind and launch products based on their own technological research and scientific innovations. Very often it is observed that innovations enter the market before the market is ready for the product, or is aware or clear about its benefits. 3. This product-oriented management with excessive attention to product rather than customer leads to short-sightedness about business. This was termed as “MarketingEDUPROZ Page 15
  • 16. Marketing Myopia” by Prof. Theodore Levitt of Harvard Business School. He recommended that companies should have a clearer and broader vision of business they are in and should adapt to the changes in the needs of the customers and in the environment. For example, a company like KODAK should not think they are only in the business of selling cameras and photographic films. They should believe that they are in the business of preserving memories for customers and photography in general 4. The Selling Concept – The Selling concept assumes that consumers generally, will not buy a company’s products unless aggressive selling and promotion efforts are undertaken. It also holds that consumers typically do not think of buying these products which are non-essential goods without persuasion or aggressive selling action. Use of this concept leads people to believe that marketing is all about selling. The problem with this approach is the belief that the customer will certainly buy the product after persuasion and will not complain even if dissatisfied. In reality, this does not happen and companies pursuing this concept fail in business. This approach is applicable in the cases of unsought goods such as life insurance, vacuum cleaners that buyers normally do not think of buying. 5. The Marketing Concept – The Marketing Concept proposes that a company’s task is to create, communicate and deliver a better value proposition through its marketing offer, in comparison to its competitors; to its target segment and that this customer oriented approach only can lead to success in the market place. To day, marketing function is seen as one of the most important function in the organization. Many marketers put the customers at the centre of the company and argue in favor of such a customer orientation where all functions work together to respond, serve and satisfy the customer. Many successful and well known multinational companies have adopted marketing concept as their business and marketing philosophies. Many Indian companies in the banking and other service sectors follow customer orientation and service as their motto. According to this concept, a company’s marketing effort must start right from identifying, through Market Research, exact needs & wants of the target market. Table 1.1. Differences between Selling and Marketing Concepts 2. Marketing Concept 1. Selling Concept 4. Emphasis on Customer needs and 3. Emphasis on Product wants 6. Goal is to produce what is needed by 5. Goal is to sell what is produced 7. the customers 8. Aggressive Sales and Promotion 9. All the departments of the company used 10. work together for serving theEDUPROZ Page 16
  • 17. Marketing 11. customers 13. Objective is profit through 12. Objective is profits through Sales customer volume 14. Satisfaction 6. The Societal Marketing Concept – This marketing concept emphasizes that the key task of the company is not only to determine the needs and wants of the target markets and delivering the desired satisfaction but also to preserve and enhance the consumers and society’s overall well being.This concept calls upon marketers to build social, ethical and environmental considerations intotheir marketing practices. It seems to be an appropriate philosophy for marketing at this timewhen there is environmental degradation and social services have been neglected in India. In therecent years, we have been witnessing a lot of complaints about products and packaging that areharmful to health and ecology. Marketers must come forward to protect the interest of both thecustomers and the environment and this they can achieve by adopting or following the societalmarketing concept.Summary 1. Marketing is a dynamic and all pervasive subject in business 2. The main functions of Marketing are Marketing Research and Information Management, Product Planning, Advertising and Sales Promotion, Selling, Physical Distribution and Pricing. 3. Marketing plays an important role in the economic development of a country like India. It is also very important from the customer and societal point of view as it helps improve the standard of living of people through better product and service offers. 4. Marketing as a concept has evolved over a period of time and has witnessed changes and modifications in its philosophy. There are five concepts which describe this development and offer ways to companies on how to conduct their business – Production Concept, Product Concept, Selling Concept, Marketing Concept and Societal Marketing Concept However, the first three are of limited use today.Unit 2 Strategic Marketing ProcessIntroduction.Marketing strategies and programs in the organizations are derived from the companywidestrategic planning. Thus, you have to understand how organizations develop their strategic plans.After analyzing the strategic plan, you should be able to relate these plans’ role in guiding theEDUPROZ Page 17
  • 18. Marketingmarketers, and their application in serving the customers with the help of company’s employeesas well as intermediaries.Learning Objective1: Describe the companywide strategic planning.Strategic PlanningStrategic planning is the process of defining the company mission, setting the long term andshort term objectives, designing an appropriate business portfolio and coordinating functionalstrategies of the company.Looking at the definition, you will be able to identify four important factors of the strategicplanning. They are1. Defining the company mission.2. Formulating the objectives3. Designing an appropriate business portfolio4. Coordination at business levels.Now, we will discuss the above points and their relevance to the marketing plans.Defining the company mission:An organization mission explains who its customers are, how it satisfies their needs and whattype of products it offers.Let me explain this concept by taking a mission statement of the Trends in Vogue, a familybeauty saloons chain from Cavin Kare, a well known fast moving consumer goods (FMCG)company in India. The mission statement is1. “To provide the customer an unparalleled service experience2. To provide the customer the largest range of “natural” products and services3. To be the first to introduce sub-formats and value-added services4. To be the most preferred family beauty salon chain for customers, employees andAlliance partners.5. To provide consistent profits to all stakeholders”Trends in Vogue mission statement analysis:EDUPROZ Page 18
  • 19. Marketinga. Who its customer is? Mission statement 4 states “family who are going to beautysaloons” as their customers.b. How it satisfy their needs? Mission statement 1 and 2 describes the needs as unparalleledservice experience and offering largest range of natural products and servicesc. What type of products it offers? The company offers natural products in their beautysaloons.Formulating the objectives.Mission statement provides a general view of the company’s products and its method ofsatisfying the customer. Mission statement is once again divided into specific objectives whichare stated in writing, can be measured quantitatively and fixed for particular time. Objectivesmay be business oriented or market oriented. They help marketers to develop strategies andprograms. You will come to know how organizations deduce their mission into differentobjectives form the following example of Bharat Electronics Limited (BEL), a public sectorenterprise in the electronic field.Mission: To be a customer focused globally competitive company in defence electronics and inother chosen areas of professional electronics, through quality, technology and innovation.Objectives:1. To be a customer focused company providing state-of-the-art products & solutions atcompetitive prices, meeting the demands of Quality, delivery & service.2. To generate internal resources for profitable growth.3. To attain technological leadership in defence electronics through in-house R&D, partnershipwith defence/research laboratories & Academic institutions.4. To give thrust to exports.5. To create a facilitating environment for people to realize their full potential throughcontinuous learning & team work.6. To give value for money to customers & create wealth for shareholders.7. To constantly benchmark company’s performance with best-in-class internationally.8. To raise marketing abilities to global standards.EDUPROZ Page 19
  • 20. Marketing9. To strive for self-reliance through indigenizationDesigning an appropriate business portfolio.After setting mission and objectives, management will develop its business portfolio.Business portfolio is the right mix of businesses that company operates and products that offersto customers.Portfolio analysis is the process by which company analyze its products and businesses.Company develops their business portfolio in two stepsa. Analyze the existing business portfolio and decide which business should receive more, less orno investment.b. Developing the new business portfolio for future to meet growth opportunities and eliminatingthe unprofitable portfolios.Analyzing the existing business portfolio:The current business portfolio of the company is analyzed by the businesses in which it operates.To make it clearer, let me take an example of ITC group. The company operates in FMCG,hotels, paper boards, specialty papers and packaging and agribusiness. These businesses areindependent from each other and have their mission and objectives separately. These subsidiariesof organizations are called as Strategic business units (SBU)Strategic business unit: The unit of the company that has separate mission and objectives andthat can be planned independently from other businesses.Characteristics of SBU.1. It may be brand, or a product line or separate division of the company.2. It is having distinct mission and objectives.3. It is managed by separate executive team.Strategic planning models used in assessing the existing businesses:1. BCG matrix ( Boston Consultancy Group)2. GE matrix ( General electric)BCG matrix: This model is used to identify company’s SBU’s position in the market. This modelidentifies the SBU’s strength, weaknesses, opportunities and threats on the basis of marketgrowth rate and relative market share. This model is also known as growth share matrix.EDUPROZ Page 20
  • 21. MarketingFigure 2.1.High LowRelative Market ShareAxis components:1. Market growth rate: The rate at which market is growing2. Relative market share: Market share of the SBU divided by the market share of the largestcompetitor.Model components:Star: This category represents the high market share and high industry growth. SBU’s in thiscategory require large investment to defend their position. SBU will turn as cash cow after sometime.Cash cows: This category represents the low growth rate and high market share which is thecharacteristic of SBU operating in mature industry. Here company needs less investment to holdtheir position. Hence it generates more cash or in management terms we say cash cow can bemilked.Question Mark: This category represents high market growth and low market share. SBU’s inthis category has two options, either to invest heavily and bring them to star position or divest /liquidate from that position.EDUPROZ Page 21
  • 22. MarketingDogs: SBU’s in this category generates less cash for the company as it operates in low growthand low market share. Usually companies will not invest in this category and try to liquidate ordivest.BCG matrix for ITC1. SBU: FMCGIndustry growth rate: 24% (AC Nielson retail audit report 2007)Company growth rate: 50% (the Hindu business line 19th January 2008)Company’s market share : 8% (outlook business)Largest competitor share: HUL: 54% (outlook business)Relative market share= 0.142. SBU: Paper boardIndustry growth rate: 7.2% (the Hindu business line 27th May 2007)Company growth rate: 11% (the Hindu business line 19th January 2008)Company’s market share: 55%Largest competitors share: BILT 35%ITC’s FMCG segment analysis shows that though it is market leader in some categories theiroverall relative market share is 0.14. Company is in the high growth low relative market sharearea i.e. question mark position. ITC should invest heavily to convert its SBU position into star.ITC’s Paperboard industry is in low growth and high market share category i.e. in cash cowsegment. It should plan for investing the cash generated from this position into other businesses.GE matrix:1 Management can use the GE business matrix to classify SBU’s on the basis of two factorsa. Market attractiveness: Market size, entry barriers, competitors, technology andprofit margin are some factors used to analyze the market attractiveness.b. Business position can be determined on the basis of market share, SBU size, R&D capabilitiesand cost controlsEDUPROZ Page 22
  • 23. MarketingEach cell in the model represented by the particular strategy namely, invest strategy, protectstrategy, harvest strategy and divest strategy2 Invest strategy: In this position SBUa. Should receive ample resourcesb. Should support by well financed marketing efforts.3 Protect strategy: SBU’s in this position shoulda. Allocate the resources selectively.b. Develop strategies which help in maintain its market position.c. Generate cash needed by other SBU’s.Business positionHigh Medium LowFigure 2.24. Harvest strategy: SBUs should not receive substantial new resources and if required, sell them.5. Divest strategy: SBUs which falls into this category should not receive any resources and sell ior shut it as early as possible.Developing the new business portfoliosEDUPROZ Page 23
  • 24. MarketingAfter analyzing the existing business of the company, let us discuss company’s future plans i.e.growth or downsizing. Company adopts growth strategies to become more competitive in themarket, tap new opportunities and become preferred employer. Downsizing is used when theproduct or market became unattractive to it. The Ansoff Product-Market Growth Matrix is amarketing tool created by Igor Ansoff and first published in his article “Strategies forDiversification” in the Harvard Business Review (1957). The matrix allows marketers toconsider ways to grow the business via existing and/or new products, in existing and/or newmarkets.Ansoffs model of product/ market expansion.Figure 2.3.a. Market penetration: A strategy used in increasing the sales of company’s existing productswithout modifying it in the existing market.Characteristics of market penetration.1. Serve customer with existing products by opening new stores.2. Increase the promotion activities to increase the consumption.3. Improve the service offerings.Café- coffee day a reputed coffee chain in south India, started its operation in brigade road,Bangalore, in the year 1996. It offers different varieties of the coffee to its existing customers.Today it is having 100 stores in Bangalore.b. Market development: In this strategy company identifies the new markets to sell their existingproducts.EDUPROZ Page 24
  • 25. MarketingIn case of market development company identifies and develops new markets for its existingproductsCafé coffee day, enthused by the success of offering a world-class coffee experience, has openeda Café in Vienna, Austria and is planning to open other Cafes in the Middle East, EasternEurope, Eurasia, Egypt and South East Asia in the coming months.(Source: www.café Product development: In this strategy, company identifies new product and sells them existingmarkets.Café coffee day added quick bites and ice-cream in their menu to cater to the needs of customers.d. Diversification: A strategy for company growth through starting up or acquiring businessesoutside the company’s current products and markets.Café coffee day started offering tea and cold drinks in its highway café retail outlets. Thesehighway café outlets offer excellent service to the travelers on the high way.Downsizing: Eliminating the unprofitable products of the company from its product lineIn the year 2000 M.S. Banga then chairman of Hindustan Unilever limited (HUL), used powerbranding strategy to improve the sales and productivity. He reduced HUL’s number of productsfrom 110 to 35.Coordination at business levels1. Organization’s strategies exist in three different levels. They are corporate level, businesslevel and operation level.2. Corporate level:a. High risk and greater profitb. Greater need for flexibility exists.c. Long term planningd. Choice of businesses, dividend policies, sources of long-term financing, and priorities forgrowth3. Operation level strategiesa. Implement the overall strategy formulated at the corporate and business levelsEDUPROZ Page 25
  • 26. Marketingb. Involve action-oriented and operational issuesc. Relatively short range and low riskd. Modest costs: depend upon available resourcese. Relatively concrete and quantifiable4. Business level strategiesa. Acts as a bridge between decisions at the corporate and functional levelsb. Less costly, risky, and potentially profitable than corporate-level decisionsc. More costly, risky, and potentially profitable than functional-level decisionsd. Include decisions on plant location, marketing segmentation, and distributionIn the strategic plan, company brings the synergy between all the three levels. To make it moreclearer, company’s marketing strategy are different from HR strategies but it should bringcoordination between both to meet organization’s objectives. Company should bring thecoordination between its growth plans and segmentation then only the operation strategy workswell.SWOT analysisS W O T represents strengths, weaknesses, opportunities and threats. SWOT analysis helpscompany to implement its strategies by leveraging strengths, overcoming from weaknesses,tapping the opportunities and minimizing the threats1) Strengths:Following are the list of strengths that company should havei. Valuable competencies or know-howii. Valuable physical assetsiii. Valuable human assetsiv. Valuable organizational assetsv. Valuable intangible assetsvi. Important competitive capabilitiesEDUPROZ Page 26
  • 27. Marketing2) Weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage.Resource weaknesses relate to inferior or unproven skills, expertise, or intellectual capital andLack of important physical, organizational, or intangible assets.3) Opportunities: Opportunities are those which match with its financial and organizationalresources, can generate profits for long term and become strength in future.4) Identifying External Threatsi. Improved technologyii. Improved products by competitorsiii. Dumping of materialsiv. Unfavorable political situationv. Potential of a hostile takeovervi. Change in the demographySWOT helps marketer to understand the current position of the company. It also helps toleverage its strengths to improve the performance and tap the opportunity that exists.Weaknesses and threats analysis helps company to overcome from them and become more agile.Learning Objective 2: Understand the marketing mix exists in the companyDeveloping the marketing mix.Marketing mix: The product, its price, promotion and distribution blended together to getfavorable response from the customer.This is also called as 4P’s of Marketing or Market assortment.1. Product: It is a good, service, idea, place or person that offered to customer to satisfy his/herneed. The attributes of product are variety, quality, warranty, design, packaging, and serviceFor example, Marico, a FMCG company offers hair oil in two brand names i.e. parachute andnihar. The brand nihar, offered in two types of packaging i.e. Sachets and bottles and offered intwo qualities i.e. coconut oil and perfumed hair oil.2. Price: the value at which customer is willing to purchase the product.For example, BSNL offers prepaid service recharge coupons in Rs175, Rs335, Rs500, Rs 1000,Rs2000 and Rs 5000 denominations.EDUPROZ Page 27
  • 28. MarketingFigure 2.4.The marketing mix3. Place: Distribution of goods from the factory to the target customer. It includes distributors,stockiest and retailers. To illustrate, Zenith computers uses authorized distributor to sell laptopsand desktops to the target customers.4. Promotion: communicating product features and its uses to target customers through differentMedias. For example, Bharati group promotes its cellular services (AIRTEL) through TV, Radioand news paper.EDUPROZ Page 28
  • 29. MarketingLearning Objective 3:Discuss how to design marketing planning modelsMarketing planning:Though strategic plan exists in the organization but it is very essential to have functional plans tocoordinate departmental activities. For example, the marketing plan guides the sales anddistribution activities of the organization. Therefore it is essential to know what the contents of amarketing plan are.Contents of marketing plana. Executive summary: Brief summary of plan, which help busy executives to go through thepoints very quickly.b. Analyzing the current market situation: The following factors should be answered in thissection.1. What is the intended market and market segment?2. What is the consumer buying behavior process for particular category of products?3. How conducive is the marketing environment to do the business?4. Whether company got right marketing mix for intended target customer?5. Who are major competitors and what are their marketing strategies?c. PEST analysis: In this section, the external environment of the company is analyzed to findopportunities and threats.( for detail see UNIT 3)d. Objectives and issues: This part of the marketing plan should discuss marketing objectives thatcompany would like to achieve in particular period and issues that may affect them.e. Marketing strategy: This section should highlight on1. Identifying the segmentation, target customer and positioning strategy2. 4P’s of marketing3. Planned activities: the following factors should be discussed in this section4. What are the programs that company plans to undertake?5. Who are responsible to monitor these programs?EDUPROZ Page 29
  • 30. Marketing6. How much time it takes to complete the program?7. How much will it cost?8. Marketing Budget9. Control: Any program implemented need to be controlled to check its performance. Henceorganization should take periodic auditing by a review committee. The control process for theplan should be discussed in this section.Marketing Implementation and control.Marketing implementation: The process in which marketing strategies and plans are convertedin to proper marketing actions to achieve the objectives.Marketing implementation depends on the following factors:1. Organization structure2. Organization cultureMarketing control: The process of evaluating marketing performance and taking correctiveactions.Marketing control involves four steps. They area. Set specific marketing goals.b. Measure the marketing performancec. Evaluate the market performance against objectivesd. Take corrective actionsMarketing control is divided into two parts. They are operation control and strategic control.Operation control involves assessing the current activities against annual plan and takingcorrective actions. Strategic control is used to assess whether existing strategic plans of thecompany meets the opportunities exist for it. Marketing audit is used as a strategic control tool.According to Philip Kotler “marketing audit is comprehensive, systematic, independent andperiodic examination of a company’s environment, objectives, strategies and activities todetermine problem areas and opportunities and to recommend a plan of action to improve thecompany’s marketing performance”.Characteristics of marketing audit:EDUPROZ Page 30
  • 31. Marketing1. Comprehensive.2. Systematic3. Independent4. periodicComponents of marketing audit:1. Marketing environment audit2. Marketing strategy audit3. Marketing organization audit4. Marketing systems audit5. Marketing productivity audit.6. Marketing function auditSummary:1. Strategic planning process involves defining the company mission, formulating the objectives,designing an appropriate business portfolio and coordination among functional strategies.2. BCG and General electric models are used to analyze existing market situation of SBU.3. SBU’s growth and downsizing strategies are determined by Ansoff model of product- marketgrowth matrix.4. Marketing mix or 4Ps of marketing is the assortment of product, place, price and promotion.5. Marketing implementation depends on organization structure and its culture.6. Marketing Audit is used as strategic control tool.Unit 3 Marketing EnvironmentIntroduction.A marketing oriented company always keeps tab on its external environment carefully to analyzeopportunities and threats. This external environment influences company’s strategies in twoEDUPROZ Page 31
  • 32. Marketinglevels i.e. external macro environment and external micro environment. The macro environmentinvolves political and legal, economic and natural, social and cultural and technologyenvironment. The micro environment consists of supply chain, customer and competitor. Thesefactors are uncontrollable by the organization. Even the best company faces threat if one of theexternal environments is adverse to it. A moderate company will be successful if the externalenvironment favors it. Hence marketing companies should monitor the external environmentcarefully and continuously.Learning Objective -1 : Understand the need of environmental scanning.Environmental scanningThis is the process of gathering, analyzing and forecasting of external environments’ informationto identify opportunity and threats that company faces.Need for environmental scanning:It helps in1. Identifying the opportunities that company has in immediate future.2. Identifying the threats faced by the company.3. Demand forecasting4. Developing appropriate business plans.5. Adjusting the company strategy in changing competitive environment.Learning Objective 2: Analyze the influence of micro environment on company’s strategies.Analyzing the organization’s micro environmentMarketing department let alone can not satisfy all the needs of customer. Therefore it is essentialto integrate the functions of suppliers, publics, company departments and intermediaries increating the value to the customer. These forces are known as organization’s micro environment.Microenvironment: The forces which are very close to company and have impact on valuecreation and customer serviceFigure 3.1Forces in the micro environmentEDUPROZ Page 32
  • 33. MarketingThe companyRemember in the previous unit we discussed about the strategic and marketing planning.Deducing a strategic plan in to specific marketing plan require coordination of other functionslike finance, Human resource, production, and research and development. For example, SafeExpress, a leader in the supply chain management solution wants to hold its position in the US $90 billion Indian logistics market. Company plans to expand its service areas in the comingmonths. To meet the targets of the marketing plan, other departments of safe express alsoexpanding their horizon. Company is coming out with logistics parks in different cities; plan’s tohold seven million square feet of warehousing capacity in the next three years and investing Rs10 billion in three years to meet that targets. The above example shows that company’smarketing plan should be supported by the other functional department activities also.IntermediariesMarketing intermediaries: The firms which distribute and sell the goods of the company to theconsumer.Marketing intermediaries plays an important role in the distribution, selling and promoting thegoods and services. Stocking and delivering, bulk breaking, and selling the goods and services tocustomer are some of the major functions carried out by the middlemen. Retailers, wholesalers,agents, brokers, jobbers and carry and forward agents are few intermediaries to name. Retailersare final link between company and customers. Their role in the marketing of product isincreasing every day.EDUPROZ Page 33
  • 34. MarketingPublicsThese are microenvironment groups, which helps company to generate the financial resources,creating the image, examining the companies’ policy and developing the attitude towards theproduct.We can identify six types of publics1. Financial publics influence the company’s ability to obtain funds. For example, Banks,investment houses and stockholders are the major financial publics.2. Media publics carry news and features about the company e.g. Deccan Herald3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insuranceregulation agency(IRDA) of the government4. Citizen action groups: Formed by the consumer or environmental groups. For example,people for ethical treatment of animals (PETA) or Greenpeace.5. General publics: a company should be concerned towards general publics’ attitude towardsits products and services.6. Internal publics: Employees who help in creating proper image for the company throughword of mouth.CompetitorsA company should monitor its immediate competitor. The product should be positioneddifferently and able to provide better services.SuppliersSuppliers are the first link in the entire supply chain of the company. Hence any problems or costescalation in this stage will have direct effect on the company. Many companies adopted supplierrelation management system to manage them well.CustomersA company may sell their products directly to the customer or use marketing intermediaries toreach them. Direct or indirect marketing depends on what type of markets Company serves.Generally we can divide the markets into five different categories. They area. Consumer market.b. Business marketEDUPROZ Page 34
  • 35. Marketingc. Reseller marketd. Government market ande. International marketYou will come to know about these five different markets from the following example.MRF a tyre company sells its product directly to consumer (in case of urgency, customerpurchases directly from showroom) i.e. operates in consumer market. It operates in businessmarkets by selling tyres to companies like Maruti Udyog limited. MRF also sells TYREs toBMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyre inAfrican or American countries then it is operating in the international market. If MRF buys theold tyres, retreads it and sells it to the consumer at a profit then company is operating in thereseller market.Learning Objective 3:To analyze the influence of external macro environment on company’s plans.Company’s macro environment.Figure 3.2 Forces in the macro environment.Demographic Environment.EDUPROZ Page 35
  • 36. MarketingDemography: The study of population characteristics like size, density, location, gendercomposition, age structure, occupation and religion.Demography statistics helps companies to develop their products in better way. These statisticsare also used in developing proper supply chain, communicating product information andchanging the product attributes. Demographic environment is analyzed on the basis of thefollowing factors.1. Age structure of the population2. Marital status of the population3. Geographic distribution of the population4. Education level5. Migration6. Occupation.Age structure of the population: from the following table you can generalize that India ishaving 48% population who are aged less than 21 and 28% of the population are in the bracket of21-25. Many marketing companies are focusing on these two segments. For example, RadioIndigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, playsinternational music. Radio indigo targets youth segment who like western music.TABLE 3. 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONSTO TOTAL POPULATIONAge group Population PercentageAll Ages 1,028,610,328 100.00–4 110,447,164 10.75–9 128,316,790 12.510 – 14 124,846,858 12.115- 19 100,215,890 9.720 – 24 89,764,132 8.725 – 44 284,008,819 27.645 – 64 139,166,661 13.565 – 79 41,066,824 4.080+ 8,038,718 0.8Less Than 18 422,808,543 41.1Less than 21 492,193,906 47.9Age no stated 2,738,472 0.3Source: C2 and C14 Table, India, Census of India 2001.EDUPROZ Page 36
  • 37. MarketingMarital status of the population:TABLE 3.2: POPULATION BY MARITAL STATUS AND SEX: INDIA – 2001 Number of Persons Percentage toMarital status ( in ‘000) TotalPersons Males Females Males FemalesTotal 1,028,610 532,157 496,454 100 100Never Married 512,668 289,619 223,048 49.8 54.4Married 468,593 231,820 236,773 45.6 43.6Widowed 44,019 9,729 34,290 4.3 1.8Divorced / Separated 3,331 988 2,343 0.3 0.2Source : C2 and C14 Table, India,Census of India 2001 Half of the Indian population falls into the never married category. This provides an opportunityfor organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today.Vintage group and are few to name in this industry. These companies are offeringend to end solution to the customers who are looking for lavish wedding in the exotic locationsboth in domestic and abroad.Geographical distribution of the populationTable 3.3; Rural – urban distribution of the population PopulationPersons 1,028,737,436Males 532,223,090Females 496,514,346Rural 742,617,747Urban 286,119,689% Urban population 27.8%Rural India with 74 crore population is a biggest market. Companies are trying to get a pie in thisuntapped market. For example, DCM Shriram limited, opened ‘Hariyali’ bazaars in rural market.These bazaars offer quality agriculture inputs, financial services, and farm output services.Education level: More than 3 crore people in India either have graduation or post graduation.This has led to the growth of many sunrise sectors. This educated population fuelled the growthof information technology (IT), information technology enabled services (ITES), andbiotechnology industries.TABLE 3.4: NUMBER AND PERCENT LITERATES BY LEVEL OF EDUCATION: INDIA2001EDUPROZ Page 37
  • 38. Marketing Absolute NumbersLevel of education (000′)Persons Males FemalesLiterate 560,688 336,534 224,154Literate without educational level $ 20,023 11,361 8,662Below Primary 144,831 81,148 63,683Primary 146,740 83,525 63,215Middle 90,227 55,940 34,286Matriculation/Secondary 79,230 51,202 28,028High secondary/ Intermediate/PreUnivercity/ Senior 37,816 24,596 13,220SecondaryNon technical diploma or certificate not equal to degree 386 259 128Technical diploma or certificate not equal to degree 3,667 2,901 766Graduate and above 37,670 25,533 12,137Migration: Geographical shift in the population is becoming an interesting area in thedemographic studies. The Table 6, list out the various reasons for migration.TABLE 3.5: NUMBER OF MIGRANTS BY PLACE OF BIRTH – INDIA 2001 Migrations by Place Category Percentage of birthA. Total Population 1,028,610,328B. Total Migrations 307,149,736 29.9 Migrants within the state ofB.1 258,641,103 84.2 enumeration Migrants from within theB.11 181,799,637 70.3 districts Migrants from other districtsB.12 76,841,466 29.7 of the state Migrants from other states inB.2 42,341,703 13.8 India Migrants from otherB.3 6,166,930 2.0 countriesSource: Table D1 India,Census of India 2001.TABLE 3.6: REASONS FOR MIGRATION OF MIGRANTS BY LAST RESIDENCE WITHDURATION (0-9 YEARS) INDIA 2001 Number of Percentage toReason for migrations Migrants Migrants Persons Males Females Persons Males FemalesEDUPROZ Page 38
  • 39. MarketingTotal migrants 98,301,342 32,896,986 65,404,356 100.0 100.0 100.0Reason for migration : 14,446,224 12,373,333 2,072,891 14.7 37.6 3.2Work / EmploymentBusiness 1,136,372 950,245 186,127 1.2 2.9 0.3Education 2,915,189 2,038,675 876,514 3.0 6.2 1.3Marrige 43,100,911 679,852 42,421,059 43.8 2.1 64.9Moved after birth 6,577,380 3,428,673 3,148,707 6.7 10.4 4.8Moved with households 20,608,105 8,262,143 12,345,962 21.0 25.1 18.9Other 9,517,161 5,164,065 4,353,096 9.7 15.7 6.7Source: Table D3, Censusof India 2001Marketers started identifying the niches in the migrated communities and offered their goods andservices. For example, Nandhini, an Andhra restaurant in Bangalore catering to the food needs ofthe Andhra community. Patrika, a Rajasthan based daily now available through out the country.Occupation:TABLE 3.7: DISTRIBUTION OF MAIN WORKED BY DIFFERENT INDUSTRIALCATEGORIES, INDIA 2001 Main Workers PercentageIndustrial category (’000s) (%)Total main workers * 312,972 100.0Agricultural & allied activities 176,979 56.6Mining & quarrying 1,908 0.6Manufacturing 41,848 13.4Electricity, gas and water supply 1,546 0.5Construction 11,583 3.7Wholesale, retail trade & repair work, Hotel and 29,333 9.4restaurantsTransport, storage & communications 12,535 4.0Financial intermediation, Real estate, business activities 6,109 2.0Other services 31,131 10.0Source : Industrial classification data based onsample Agriculture is the main occupation of the people in India but the share of other services isgrowing rapidly. The other service category includes IT and ITES. Employees of thesecategories have high disposable income. This has led to the opening of specialty stores andmanufacturing of the luxury items in the country.Political And Legal Environment.EDUPROZ Page 39
  • 40. MarketingGovernment policies, legislations, regulations, and stability will directly affect the business.Therefore it is inevitable for the firm to closely monitor this environment. The political and legalforces are grouped into the following four categories.Monetary and fiscal policies: These policies regulate government spending, money supply andtax legislations.1. Social legislations and regulations. Environmental protection act which specifies theemission level.2. Government relationships with industries: Government subsidies and change in tariff ratewill have direct impact on the particular company.3. Legislations related to marketing: Following are the list of legislations which affect marketingactivities of the company.Table 3.8· Companies act 1956. · Industrial dispute act 1957· Consumer protection act · Minimum wages act· Payment of bonus act. · Environmental protection act· Industries development and regulation act. · Trade union act· Contract law · Factories act 1948· The contract labor (regulation and abolition) act1970. · Sales promotion employees’ act1976· Shops and establishment act 1953 · Copyright act 1957· Trade marks act 1999 · Patents act 1970· Designs act 2000 · Foreign exchange management act 1999Economic And Natural Environment:Consumer spending patternAccording to National sample survey 2005-06,1. Monthly per capita consumption in rural area: Rs625.2. Monthly per capita consumption in urban area: Rs1, 171.3. Food expenditure in monthly per capita consumption: 53 %( Rural area)4. Food expenditure in monthly per capita consumption: 40%( urban Area)The above data shows that most of the expenditure in monthly per capita income goes to the foodexpenditure only. Marketers in the non food category should promote heavily to change thisspending pattern. Companies in the food category should note that food expenditure in monthlyEDUPROZ Page 40
  • 41. Marketingper capita expenditure is coming down. Hence extra efforts are required by these companies tosell their products.Interest rate: when interest rates are high, consumer tend not to make long term purchase likehousing. If the interest rate is low people put their money in alternative financial options wherethey get better return.Inflation: Higher the inflation rate lesser will be the purchasing power of the consumer. Hencegovernment always tries to control the inflation within the limit.Changes in income: The rise in the salaries of the employees, improved performance of stockmarket and better industrial growth led to the change in the income pattern in India. ManyIndians became millionaires and billionaires. Percentage of below poverty line is decreasing, butthe concern is rich and poor divide is growing.Natural Environment:Environmental concerns are growing over the years. Governments increased regulations tomanage the natural resources. Marketers should aware of such trends in the natural environment.Some of the factors which organizations should keep a vigil area. Inadequate raw materialsb. Global warming and pollution levels andc. Regulatory world.a. Inadequate raw materials: We are over depending on Middle East countries for petroleumproducts. Automobile companies are improving their technologies and also planning to come outwith hybrid cars which use alternative fuels.b. Global warming is a big issue today.c. Regulatory world; The Indian government through environmental protection act, makingstringent rules on emission and environment standards. Companies, particularly in automobilesshould adhere to those norms, which are expensive and time consuming.Social and cultural environment:1. Working women and rise of metro sexual man.: Number of women who are working inIndia is increasing. This segment is looking towards products which help them in bringing betterwork life balance. MTR a fast food giant in south India started offering ready to eat products tothis segment. These products are instant in nature where a woman dips a product in the hot waterfor 2-3 minutes and serves. Metro sexuality is another new phenomenon, wherein a man alsoassumes the role of women like purchasing household items and helping in kids’ education etc. Itmade marketers’ task more difficult on positioning their products.EDUPROZ Page 41
  • 42. Marketing2. Time short people: This segment involves people who work long hours and have lesspersonal time. These people are looking for products which satisfy them quickly andconveniently. For example, Easy bill, from Hero group offers one stop solution to consumer topay their utility bills and do other financial transactions.Technology environment1. Growth of information technology and biotechnology industries: Information technology hasrevolutionized the lives of the people. It bought dramatic changes in the way organizationsoperates. It helped in cost reduction, automation, better communication and efficiency in theorganizations. Indian banks few years ago use to take lengthy time to process the customerrequests reduced it to few hours because of information technology.Learning Objective 4:The difference between the external macro and micro environment.Difference between Micro environment and Macro environment.Table 3.9 Macro environment Micro environmentSize Large smallControl Cannot be controlled Can be controlled to some extentUncertainty Very high lowcomplexity High low Political, social, cultural, technology, Customer, publics, competitors,Examples demography and natural environment suppliers and intermediaries.PEST (Political and legal, economic and natural, social and cultural, and technologyenvironment) Analysis:Table 3.10Factors Opportunity Threat1. Political and legal environmenta. Monetary policyb. Fiscal policyc. Environmental policyd. Lobby groups2. Social and cultural environmenta. Genderb. demographicsc. work culture3. Economic and natural environmentEDUPROZ Page 42
  • 43. Marketinga. Incomeb. Spending powerc. Inflationd. Interest ratee. Raw materialsf. Taxation4. Technology environmenta. Entry barriersb. Growth of technologyc. Transfer of technologySummary1. Environment scanning is necessary to understand opportunities and threats faced by thecompany.2. Micro environment factors like marketing intermediaries, suppliers, competitors, publics andcustomers influences company’s strategies. These are controllable to some extent.3. Population variables like age, gender, marital status and occupation helps the company toassess the market and change or develop their offerings4. Shortage of raw material and increase in the income disparity are immediate concerns of theorganizations.5. Working women and time short people changing the socio- cultural environment of thecountry.6. Technology is helping company to reduce cost, increase the efficiency and save time.7. Micro and macro environment are differentiated on the basis of size, complexity, anduncertainty.Unit 4 Understanding the Marketing Information Systems (MIS)IntroductionIn the earlier chapter, we saw how marketing environment is changing and presenting newopportunities and threats to an organization. The main responsibility for identifying significantchanges in the market place falls on the marketing department. They are better placed and haveadvantages in undertaking this task because they are regularly interacting with customers andobserving competition.EDUPROZ Page 43
  • 44. MarketingThe Marketing Departments need to develop Marketing Information Systems that providethem information about buyer wants, preferences, behavior and also about competition. They areable to do this by setting up systems and marketing related research methods to collect thisvaluable information which is ultimately used to help make marketing decisions.A Marketing Information System is a set of procedures to collect, analyze and distributeaccurate, prompt and appropriate information to different levels of marketing decision makers.Learning Objective 1: Understand the concept of Marketing Information System, as well as itscharacteristics & benefits.Characteristics of MISPhilip Kotler defines MIS as “a system that consists of people, equipment and procedures togather, sort, analyze, evaluate and distribute needed, timely and accurate information tomarketing decision makers.Its characteristics are as follows:1. It is a planned system developed to facilitate smooth and continuous flow of information.2. It provides pertinent information, collected from sources both internal and external to thecompany, for use as the basis of marketing decision making.3. It provides right information at the right time to the right person.A well designed MIS serves as a company’s nerve centre, continuously monitoring the marketenvironment both inside and outside the organization. In the process, it collects lot of data andstores in the form of a database which is maintained in an organized manner. Marketers classifyand analyze this data from the database as needed.With the advent of Computer Technology, MIS has taken a step further to provide managersdirect access to the databases. This system called MarketingDecision Support System (MDSS) links a decision maker to relevant databases and analysistools, thereby allowing him to gain deep insights into needs and trends of customers with thehelp of sophisticated statistical analysis.Today companies organize the information in databases such as customer database, productdatabase, and field sales database and combine them to be stored in a huge database called DataWarehouse. The process of searching through information in data warehouse to identifymeaningful patterns that guide decision making is called Data Mining.Benefits of MISVarious benefits of having a MIS and resultant flow of marketing information are given below:EDUPROZ Page 44
  • 45. Marketing1. It allows marketing managers to carry out their analysis, planning implementation and controlresponsibilities more effectively.2. It ensures effective tapping of marketing opportunities and enables the company to developeffective safeguard against emerging marketing threats.3. It provides marketing intelligence to the firm and helps in early spotting of changing trends.4. It helps the firm adapt its products and services to the needs and tastes of the customers.5. By providing quality marketing information to the decision maker, MIS helps in improving thequality of decision making.Types of Marketing InformationA Marketing Information System supplies three types of information.1. Recurrent Information is the data that MIS supplies periodically at a weekly, monthly,quarterly, or annual interval. This includes data such as sales, Market Share, sales call reports,inventory levels, payables, and receivables etc. which are made available regularly. Informationon customer awareness of company’s brands, advertising campaigns and similar data on closecompetitors can also be provided.2. Monitoring Information is the data obtained from regular scanning of certain sources such astrade journals and other publications. Here relevant data from external environment is capturedto monitor changes and trends related to marketing situation. Data about competitors can also bepart of this category. Some of these data can be purchased at a price from commercial sourcessuch as Market Research agencies or from Government sources.3. Problem related or customized information is developed in response to some specificrequirement related to a marketing problem or any particular data requested by a manager.Primary Data or Secondary Data (or both) are collected through survey Research in response tospecific need. For example, if the company has developed a new product, the marketing managermay want to find out the opinion of the target customers before launching the product in themarket. Such data is generated by conducting a market research study with adequate sample size,and the findings obtained are used to help decide whether the product is accepted and can belaunched.Components of MISThe following diagram shows a typical Marketing Information System with its components.Which are?1. Internal Records System2. Marketing Intelligence SystemEDUPROZ Page 45
  • 46. Marketing3. Marketing Research System4. Analytical Marketing SystemFig 4.1 The Marketing Information SystemInternal Records SystemThis includes information on (i) Order to payment cycle and (ii) sales information systems.Order to payment cycle has a system which records, the timing and size of orders placed byconsumers, the payment cycle followed by consumers and the time taken to fulfill the orders, inthe shortest possible time. Customers place order through sales people and companies dispatchthe goods and receive payments directly or through bank. A proper record system pertaining toorder – to – payment cycle management helps mangers to decide on production and dispatchschedule, inventory and accounts receivable schedule and also logistics and distributionmanagement schedules,Sales Information Systems record everything in the sales Department, starting from Sales CallReports to prospects history to Sales territory and quota information for better sales planning andforecasting purpose.Marketing Intelligence SystemThis is a set of procedures and sources used by managers to obtain everyday information aboutdevelopments in the marketing environment. This system supplies ‘happenings’ data unlikeInternal Records System which supplies ‘results’ data. Marketing managers collect data frompublished sources like books, magazines and journals; by talking to customers, intermediariesEDUPROZ Page 46
  • 47. Marketingand sales personnel. Some companies appoint specialists to gather consumer and competitorinformation, who does mystery shopping to monitor the performance of their own orcompetitor’s dealers. Competitor information can also be obtained by buying their product,attending their press conferences, trade shows and reading their annual reports. Companiespurchase commercial information from outside suppliers and market research agencies likeIMRB, ORG – MARG to obtain competitive data on their sales, advertising expenditures etc.,besides their own.Marketing Research SystemThis is the third component of MIS. Marketing Research provides information to marketingmanager when he/she encounters marketing problems. This may involve conducting MarketingResearch survey by collecting primary data. These surveys may be conducted by the marketingdepartment itself or a it can hire services of an external marketing research agency.Analytical Marketing SystemsAlso known as Marketing Decision Support systems (MDSS), this is a co-ordinate collection ofdata, systems, tools and techniques with supporting software and hardware by which anorganization gathers and interprets relevant information from business and environment andturns it into a basis for marketing action. All the data which is generated through the other threesystems described above are stored in a data base. The storage and retrieval capability ofdecision support system allows the collection and use of a wide variety of data throughout thecompany. Senior managers can access the data base and continually and monitor sales, markets,performance of the sales people and other marketing systems as well.Learning objective 2:Understand the role and scope of Marketing Research in making Marketing decisions.Marketing ResearchEarlier we saw that Marketing Research is an important component of the Marketing InformationSystem. Marketers need to acquire good understanding of their own markets to monitor thechanging environment. They need information to assess their own past performance as well as toprepare future marketing plans. Hence they require timely and accurate information on theirconsumers and competitors as well as on the performance of their products. In today’s highlycompetitive and complex environment consumer needs are changing at a fast pace. Hencedecision making is very challenging.Marketing Research performs the task of collecting, recording and analyzing relevant data. Thus,it has emerged as one of the important activities of the marketing function.American Marketing Association (AMA) defines Marketing Research as –Definition: Marketing Research is the function which links the consumer, customers and publicto the marketer through information – information used to identify and define marketingEDUPROZ Page 47
  • 48. Marketingopportunities and problems; generate, refine and evaluate marketing actions; monitor marketingperformance; and improve understanding of marketing as a process.Philip Kotler defines Marketing Research as – the systematic design, collection, analysis andreporting of data findings relevant to a specific marketing situation facing the company.Features of Marketing Research1. It is a systematic process – It has to be carried out in a stepwise and systematic manner andthe whole process needs to be planned with a clear objective.2. It should be objective – It is important that the methods employed and interpretations areobjective. The research should not be carried out to establish an opinion nor should it beintentionally suited towards predetermined results.3. It is multi-disciplinary – Marketing Research draws concepts from other disciplines such asStatistics for obtaining reliable data and from Economics, Psychology and sociology for betterunderstanding of buyers.Learning objective 3:Define the objectives of a typical marketing research studyObjectives of Marketing ResearchMarketing Research may be conducted for different purposes. Based on how organizations useMarketing Research, objectives of Marketing Research can be summarized as follows:1. To understand why customers buy a product2. To forecast the probable volume of future sales or expected market share3. To assess competitive strengths and strategies4. To evaluate the effectiveness of marketing action already taken5. To assess customer satisfaction of company’s products/servicesLearning Objective 4:Outline and explain the steps involved in Marketing Research processMarketing Research ProcessEvery marketing research problem is different requiring a special approach or emphasis. Stillthere is a sequence of steps, called the research process which can be followed in all themarketing research studies and projects. Each step in this research process in independent but itEDUPROZ Page 48
  • 49. Marketingis closely related to other steps, because the result of the preceding step is the basis for thesucceeding step.Fig 4.2 Marketing Research ProcessStep I – Define the problem and research objectivesIt is said that ‘a problem well – defined is a problem half – solved’. A careful and precisedefinition of the marketing problem will lead to useful and relevant results which can solve themarketing problem.Each research project should have one or more objectives which form the broad frame withinwhich research has to be conducted.It is very important to formulate the problem properly as being the first step in the process; anyerror in this can mislead the entire study towards incorrect and erroneous results.Step II – Develop the Research Plan and DesignA Research plan is simply the framework within which collection and analysis of data isundertaken. This step involves decisions on the data sources, research approaches, researchinstruments, sampling plan and contact methods.1. Data sources – The researcher has to decide which data sources to use – Secondary Data orPrimary Data or both.Secondary Data are data which collected for some other purpose or for commercial purpose ofselling.EDUPROZ Page 49
  • 50. MarketingPrimary Data are freshly gathered for a specific purpose or a specific research project.Researchers usually look for Secondary Data to see whether the research problem can be partlyor fully solved without collecting primary data. Secondary Data, when available, should bechecked for reliability, accuracy and relevance to specific situation. If so, it is a much betteroption as it is cheaper and is immediately available. If such needed data is not available, primarydata will have to be collected.2 Research Approaches – Primary Data can be collected using any of the five approaches. Theyare:1. Observational Research – Fresh data can be collected by observing the situation and thepeople in the situation.2. Focus Group Research is a method of discussion in which a team of eight to twelve personsinvited for a group discussion in presence of a skilled moderator to discuss a product, service, afirm or any marketing related activity. The proceedings are observed and recorded on videotapeand subsequently analyzed to understand consumer attitudes, beliefs and behavior.3. Survey Research – This is the most common of the approaches wherein surveys areundertaken with the help of a questionnaire to learn about people’s knowledge, beliefs andpreferences.4. Behavioral Research – Customer’s actual behavior in terms of actual purchases reflect theirpreferences and are more reliable than responses provided in surveys which are memory based.5. Experimental Research – The most scientific method of research is experimental researchwhich tries to capture cause and affect relationships.Experiments are conducted by selecting matched groups of subjects, which are subjected todifferent treatments. Extraneous variables (The external variable that affect the research process)are controlled and then responses of the two groups are observed and checked for statisticallysignificant differences, if any. Since the extraneous factors are eliminated or controlled, theobserved effects are related to the variations in the treatments.3 Research Instruments – There are mainly two types of research instruments: questionnairesand mechanical devicesi Questionnaire – This consists of a set of questions logically arranged and presented to therespondents to answer. Questionnaire is the most commonly used instrument for collection ofprimary data due to its flexibility. It needs to be carefully prepared and pre – tested before beingused for actual data collection.ii Mechanical Devices – Mechanical Devices such as galvanometers are used to measure theinterest or emotions aroused by exposure to an ad. Eye Cameras study respondent’s eyemovement to see which part of an ad attracted attention first and how long they pay attention to asingle item. These days Television audience ratings are measured using Audiometers which canEDUPROZ Page 50
  • 51. Marketingbe attached to TV’s in a set of sample households. These devices record when the set is on and towhich channel it is tuned. The data collected by mechanical devices are generally found to bemore accurate than by human observation.4 Sampling Plan – Now the researcher must prepare a sampling plan which outlines who shouldbe surveyed (Sampling Unit), How many should be surveyed (Sample Size) and how should theybe selected for the survey (Sampling Procedure).i Sampling Unit – Researcher must define the element of the target population by whominformation shall be collected. For example, housewife or a youth between 16 – 25 years or anoffice located on M. G. Road.ii Sample Size – Large samples provide more reliable results than smaller samples. But normallysample size is decided based on nature of the study and variance in the population, level ofaccuracy desired and above all money available for research.iii Sampling procedure – Two types of methods are available for selecting the samples –Probability Sampling and Non– Probability Sampling.Probability sampling method requires that each element of the population has an equal or knownchance of getting selected. It also allows the calculation of confidence limits for Sampling Error.Three commonly used Probability sampling methods are Simple Random Sampling, StratifiedRandom Sampling and Cluster Sampling.In Non Probability Sampling method, respondents are chosen on the basis of researcher’sjudgment or convenience and this method does not allow sampling error to be measured. In spiteof these limitations, many researchers take Non – probability samples due to time and costconstraints. Three commonly used Non – Probability sampling methods are ConvenienceSampling, Judgment Sampling and Quota Sampling.5 Contact Methods – Now the researcher has to decide how the respondent should becontacted.The choices of methods available are mail, telephone, personal interview or onlineinterview.Mail Questionnaire – This is the best way to reach people who may not give personal interviewor if the subject of the study is of a personal nature. This questionnaire should be simple andclearly worded so that respondent can fill up the answers without any assistance. The responserate in this method is usually low and responses come slowly.Telephone Interview – This method is very quick way for gathering information. The method isinteractive, in case any clarification is required, but such an interview typically should be short.Only few questions can be asked through this method. In India, Telephone interviewing isdifficult as people do not like to answer questions coming from strangers.Personal Interview – This is the most versatile method which can be adapted to any kind ofresearch subject. By face to face interaction researcher will be able to make personalEDUPROZ Page 51
  • 52. Marketingobservations. It is the most expensive and also time consuming method. Personal Interviews canbe undertaken after arranging interviews at the respondent’s premises or at Shopping Malls bystopping people and requesting interview. The latter method is called Mall Intercept Method.This method is necessarily a non – probability method but is less expensive and does not take toomuch time.Online Interviews – There are many ways to collect information through the internet. ACompany can put a questionnaire on its web site and offer incentive to people to answer; abanner can be kept on a popular site like Yahoo!, inviting people to answer some questions andwin a prize. Every day new methods are being evolved to start a new way to collect data.Advantages of online Interview are that it is very inexpensive and can be very fast, whereasdisadvantage is that it has limited reach and results can be skewed.Step III – Collect the Information – After designing the research instrument, the researchershould now actually contact the respondent and collect the information. At this stage, it is veryimportant to keep the quality of the data under control by ensuring accurate unbiased answersand by seeking the entire respondent’s co – operation. In case the researcher has to appoint datacollectors to collect the information from respondents, they must be well trained and motivated.Step IV-Analyze the information –In this stage researcher collects the data and codify it.Nowadays, many questionnaires are pre coded which makes the task of data entry very easy. Thecoded data is then tabulated to provide frequency distributions. Tabulated data is now analyzed.Averages and measures of dispersion are computed for the major variables. Advanced StatisticalTechniques are used to discover findings. Here the data is converted to information which maybe used in decision – making.Step V Present the findings – At this last step, the researcher should present findings to thedecision makers or users of the information.Normally, the findings are presented in the form of a report which should present the followingaspects of the research undertaken.General Format of a Report1. Introduction – An introduction to background of the marketing problem and the firm.2. Statement of Purpose – Statement of purpose and objectives of the study includinghypothesis/hypotheses is/ are proposed.3. Research Methodology – Methodology of data collection used and tools used, SamplingProcedure used and Sample Size, Limitations of the study if any.4. Analysis of Data – Includes tables /graphs and statistical analysis used along with datainterpretation.5. Findings and Conclusions – Major findings and conclusions.EDUPROZ Page 52
  • 53. Marketing6. Recommendations – Recommendations for action.7. Appendix and Bibliography.Learning objective 5: Understand the importance of marketing researchImportance of Marketing ResearchWith the increase in customer orientation, it has become necessary to acquire information onconsumers’ needs, preferences and opinions. This will help the marketers to make changes in themarketing mix. Thus marketing research is a very important and useful tool in enhancing thedecision – making ability of the marketer in today’s dynamic environment.Learning objectives 6: Explain the advantages and limitations of the marketing researchfunctionAdvantages And Limitations Of Marketing Research.Advantages: Marketing Research has several advantages1. It uses a scientific approach in designing the problem and finding out alternative solutionsthrough use of statistical and mathematical techniques.2. It helps to make better marketing decisions as they are based on authentic information, ratherthan pure judgment or guess work.3. It helps in evaluating the effectiveness of various marketing actions and draws attention tolikely problem areas.4. It is helpful in ascertaining the reputation of the firm and its products.5. It helps the firm in knowing the marketing and pricing strategies of its competitors.6. It is helpful to a firm in making sales forecasts for its products and thereby, establishes aharmonious match between demand and supply of its products.Limitations:Like any other managerial tool, marketing research is not free from flaws. It is seen that in manycases, wrongly executed marketing research project or improperly interpreted findings, has hadto disasters in business. Following are some of the limitations of marketing research.1) Not an exact Science: Though marketing research uses scientific methods but it is not anexact science. It deals with human behavior and many controllable and uncontrollable factors,which influence marketing forces, play their role.EDUPROZ Page 53
  • 54. Marketing2) It is not a panacea: Marketing Research can only provide accurate information, based onwhich marketers have to take their decision using their experience and judgment as well.Marketing Research is only an aid, it does not provide solutions.3) Human Tendencies – Consumers, dealers, wholesalers etc are the basic constituents onwhom marketing research is carried out. Human beings behave artificially when targeted forresearch information. These aspects of human behavior affect the quality of marketing researchdata.4) Inexperienced research staff: It needs well trained and experienced researcher, interviewerand investigator, otherwise quality of data will be adversely affected.5) Involves high cost: It is considered a luxury or a wasteful activity in India, as it involves highcost.6) Limitations of tools and techniques: The validity of marketing research is also limited bythe limitation of tools and techniques involved.Summary1. Marketing Research is the systematic gathering recording and analyzing of data aboutproblems relating to marketing of goods and services.2. Marketing managers need a Marketing Information System (MIS) to carry out their tasks ofanalysis, planning, implementation and control related to the marketing function, effectively.3. By providing timely and accurate information, MIS helps in improving the quality of decision– making.4. An MIS has four Components (I) Internal Records System (II) Marketing Intelligence System(III) Marketing Research System (IV) Analytical Marketing System.5. Marketing Research Process refers to a set of sequential steps to be followed to conduct amarketing research study.6. The main features of Marketing Research are that it is a systematic process; it should beobjective and it is multidisciplinary in nature.7. With the changing character of markets, increase in Customer needs and wants and increasingcompetition, it is important that marketers acquire information about consumer, the markets andthe competition. Marketing Research now is an important tool for marketers as an aid in decisionmaking.Unit 5 Consumer Buyer BehaviorEDUPROZ Page 54
  • 55. MarketingIntroductionConsumers are individuals, households or businesses who use the products. In this unit we arelimiting our study to individual and households’ use of products for personal consumption.Consumer characteristics vary from country to country. Therefore it has become challenging taskfor marketer to understand the need, buying behavior of consumer before developing product andmarketing it. In this section we will discuss consumer buying behavior and his/her decisionmaking process. We will also look into the decision process of buyer for the new product.Consumer motives and behavior models are analyzed to identify the buying environment.Learning Objective 1: Identify the characteristics that affect consumer behavior.Characteristics affecting consumer behaviorCultural, Social, Personal and Psychological factors influence the consumer behavior. These areexternal to the company and cannot be controlled. Marketer would like to understand the impactof these factors on his/her organizationI. Cultural factors:1. Culture is the combination of customs, beliefs and values of consumers in a particular nation.Majority Indians are vegetarians and a company which sells non vegetarian items should analyzethese values of the consumer. For example, KFC which sells chicken dishes all over the worldadded vegetarian burgers in their menu to serve vegetarian consumers. Another multinationalMcDonald, whose majority of sales comes form selling beef lets, didn’t include in the Indianmenu as cow is a sacred animal.2. Subcultures are part of culture comprising, geographic regions, religions, nationalities andracial groups. The value system of these groups differs from others. For example, Hindus innorth India eat special vegetarian food during the Navaratra festival. They prefer to spend theirtime with their family. During this time restaurants will have lesser traffic. To attract thecustomers, restaurants started offering the authentic Navaratra dish. This helped the restaurant toattract the family who don’t have time, bachelors and people want to spend their time withfamily without allotting much time for food preparation and so on.3. Social class these are permanent groups in the society whose members have common likings.According to Mckinsey consumer report, Indian consumers can be classifies into five differentcategories. They are,a. Deprivedb. Aspiresc. Seekersd. Strivers andEDUPROZ Page 55
  • 56. Marketinge. Global Indians.1. Deprived are the people who earn less than Rs 90,000 annually. This group is also known asbelow poverty line. They are the poorest people in the country. They won’t get continuousemployment and they earn their lively hood from seasonal work. People in this category will doless skilled or semi skilled work.2. Aspires belongs to the families who earn between Rs90, 000 to Rs 2, 00,000. This groupconsist small shop keepers, industrial workers, and small land holding farmers. Though they earnmore than deprived class, but half of their money goes for basic amenities and food.3. Seekers earn between Rs 200,000 to 500,000. This class varies largely. The group containsfresh workers, middle level employees, government employees and business people. The classvaries widely on the age, attitude and other factors.4. Strivers belong to the group who earn between Rs 500,000 to 1,000,000. People in thiscategory are considered very successful. The group contains business people, large farmers,senior government officials and professionals. Their earnings are enough to fill their apatite ofmaterials. They are leading the consumption led growth in India.5. Global Indians are earning more than Rs 1,000,000. This group is comprised of seniorgovernment officials, professionals, business people and top business executives. India iswitnessing the growth in this class. They are truly global; they purchase international brands andhave international cuisine.II. Social factorsHuman beings are social animals. They live and interact with other people. Therefore there is achance of influence by others on their opinions. Marketers like to identify such influentialpersons or groups of consumer. Generally such groups are classified into two major groupsnamely reference groups and family.Reference groups are used in order to evaluate and determine the nature of a given individual orother group’s characteristics and sociological attributes. Reference groups provide thebenchmarks and contrast needed for comparison and evaluation of group and personalcharacteristics. “Reference groups are groups that people refer to when evaluating their ownqualities, circumstances, attitudes, values and behaviors.” – William Thompson & JosephHickey, Society in Focus, 2005.” Reference groups act as a frame of reference to which peoplealways refer to evaluate their achievements, their role performance, aspirations and ambitionsFamily: Indian culture gives utmost importance to the family. People discuss with their familybefore purchasing the valuable items. Wife, children and parents influence the decisions of thefamily. Therefore many companies use either whole family or kids in their promotionalprograms.EDUPROZ Page 56
  • 57. MarketingGodrej introduced memory back up auto washing machine. They have shown the family in theadvertisement who are enjoying without any problems of washing clothes. In the secondadvertisement Dabur chyavanprash uses kids in their advertisements. The target customers areused with celebrity to provide necessary image and convey the attributes of the product.III. Personal factors:Individual factors like age, occupation, lifestyle and personality influence the consumer decisionmaking. We discussed age and occupation factors and their application earlier in the marketingenvironment unit. We will discuss lifestyle and its influence on the consumer in the segmentationunit. In this section we will focus on the personality and its influence on the consumer decisionmaking process. Personality is the image of people’s traits. Traits include Self confidence,Dominance, autonomy, defensiveness, adaptability and aggressiveness. Many companies usedthese concepts in their marketing communications. Bajaj pulsar used muscularity to highlight itsimage (definitely male). Fair and lovely and stay free tried to highlight 21st century Indian girland their aspirations in their communications.IV Psychological factors:Motivation:Abraham Maslow’s “Need Hierarchy Theory”:EDUPROZ Page 57
  • 58. MarketingOne of the most widely mentioned theories of motivation is the hierarchy of needs put forth bypsychologist Abraham Maslow. Maslow saw human needs in the form of a hierarchy, ascendingfrom the lowest to the highest, and he concluded that when one set of needs is satisfied, this kindof need ceases to be a motivator. As per his theory these needs are:(i) Physiological needs: These are important needs for sustaining the human life. Food, water,warmth, shelter, sleep, medicine and education are the basic physiological needs which fall in theprimary list of need satisfaction. Maslow was of an opinion that until these needs were satisfiedto a degree to maintain life, no other motivating factors will work.(ii) Security or Safety needs: These are the needs to be free of physical danger and of the fearof losing a job, property, food or shelter. It also includes protection against any emotional harm.(iii) Social needs: Human beings are social animals. They strive to be in the society. In this typeof needs people will try to satisfy their needs for affection, acceptance and friendship.(iv)Esteem needs: According to Maslow, once the people satisfied with social needs. Theywould like to have esteem needs. This category includes power, prestige status and self-confidence needs. It includes both internal esteem factors like self-respect, autonomy andachievements and external esteem factors such as states, recognition and attention.(v) Need for self-actualization: Maslow regards this as the highest need in his hierarchy. It isthe drive to become what one is capable of becoming; it includes growth, achieving one’spotential and self-fulfillment. It is to maximize one’s potential and to accomplish somethingMarketer is interested in finding what state of need hierarchy the consumer is in and what type ofproduct to be developed to suit his or her needs. If person needs security for his car than themileage then auto companies should highlight that benefit in their marketing communications.EDUPROZ Page 58
  • 59. MarketingPerception:It is the process of acquiring, interpreting, selecting and organizing sensory information.Explanation of the definition: stimulus is generated by hearing, smelling, seeing, touching, andtasting. People develop stimulus about product or services through any of the above themes andcreates an image in the mind.The marketing implication of the definition; Marketer researches his consumer profile andcommunicates the product or service messages either through radio, demo, or television. Byseeing, hearing or experiencing the product or service consumer will develop an image in themind. The message given by company may pass through three different selection procedures.a. Selective attention: The habit of the people to analyze the information completely andinterpreting it. They develop the perception about the product or service only after completeanalysis. This is very difficult group to handle as they request for more information.b. Selective distortion: the phenomena in which consumer will have predispositions andinterpret the organizations information as they like it. This type of perception is both effectiveand non effective for the company. If consumer understands the wrong message in a right way itis advantageous but if he understand right message in wrong way then company will be undertrouble.c. Selective retention: consumer will not remember all the points informed by the company.He/she may remember the good points of company and forget the negative points of thecompany.Learning objective 2: Explain different types of buyer behavior.Types Of Buying Decision Behavior: Henry Assael Model.Figure 5.3EDUPROZ Page 59
  • 60. MarketingComplex buying behavior: customers who are representing this behavior are highly involved inthe purchase of the product or service. The process became complex as difference betweenbrands are very high. For example, customer who wants to purchase refrigerator would like toknow the meanings of defrosting, door lock, digital temperature control etc… The price of theproduct usually high let me show you the comparison of three brands and significant differencebetween them.Table 5.1EDUPROZ Page 60
  • 61. MarketingFrom the above example it is clear that marketer should first develop the belief about the brand,provide the information and differentiate the company brand from others. In the above exampleyou can see both Akai and LG don’t have water dispenser while Electrolux have. Both LG andElectrolux have moisture and humidity control while Akai lacks it. Customer would like to knowwhat these features are and how they add value to the product.Dissonance reducing buying behavior:The behavior exhibited by the customer when product purchase requires high involvement butonly few differences exist. For example, customers who want to purchase CTV will not findmany differences between the brands but the price of the product and its technicality makescustomer to involve more. One of the major disadvantages of this type of behavior is customerwill show post purchase dissonance which is very difficult to control.Variety – seeking buying behavior.EDUPROZ Page 61
  • 62. MarketingWhen there are significant difference between the brands existing but customer will not involvemore while purchasing, marketer identify this behavior as variety seeking buying behavior. Letus discuss the purchasing behavior of customer for biscuits. There are many varieties of biscuitsavailable. One can purchase salt biscuits, cream biscuits, Marie biscuits, and milk biscuits ofBritannia, Parle, ITC sun feast and others. The customer who purchased Britannia tiger earliermay purchase Sun feast cream biscuit next time. This doesn’t mean that quality of Britannia tigeris inferior to other brands but customer would like to try the varieties available in the market. Inthis situations marketer should undertake following stepsa.The market leader should encourage customers to buy repeatedly.b.Make the product available and visible to the customer in the shopping places.c. The firm who are not market leader should come out with sales promotion techniques toencourage customer to purchase the product.Habitual buying behavior:The low involvement between the brands and few differences between the brands leads to thehabitual buying behavior. For example spice powder marketed by MDH, Everest or MTR havevery few difference between them and customer do not search the information to purchaseparticular product. Marketers whose customer represents this category should follow below listedstrategiesa. Use price and sales promotions to stimulate product trial.b. Use more visual aspects than the wordings in the advertisementsc. Television is the better media for this type of products.d. Use classical conditioning theory to create advertisements.Learning Objective 3:Analyze the consumer decision making processConsumer buying decision process.After discussing the factors those influence the buying behavior, now, we will discuss theconsumer decision making process. Consumer passes through five different stages whilepurchasing the product.Figure 5.4EDUPROZ Page 62
  • 63. Marketing1. Need recognition: customer posses two type of stimuli’ at this juncture. One is driven by theinternal stimuli and another is external stimuli. The examples of internal stimuli are customer’sdesire, attitude or perception and external stimuli are advertising etc…From both stimulicustomer understand the need for the product. Here marketer should understand what customersneeds have that drew customers towards the product and should highlight those in thecommunication strategy.2. Information search: In this stage customer wants to find out the information about theproduct, place, price and point of purchase. Customer collects the information from differentsources likea. Personal sources: Family, friends and neighborsb. Commercial sources: Advertising, sales people, dealers, packaging and displays.c. Public sources: mass media and consumer rating agencies.EDUPROZ Page 63
  • 64. Marketingd. Experiential sources: Demonstration, examining the product.In this stage marketer should give detailed information about the product. The communicationshould highlight the attributes and advantages of the product in this stage so that he created thepositive image about the product.3.Evaluation of alternatives : After collecting the information, consumers arrive at someconclusion about the product. In this stage he will compare different brands on set parameterswhich he or she thinks required in the product. The evaluation process varies from person toperson. In general Indian consumer evaluate on the following parametersa. Priceb. Featuresc. Availabilityd. Qualitye. DurabilityAt this stage marketer should provide comparative advertisements to evaluate the differentbrands. The advertisement should be different for different segments and highlight the attributeaccording to the segment.4. Purchase decisionIn this stage consumer buy the most preferred brand. In India affordability plays an importantrole at this stage. Organizations’ bring many varieties of the products to cater to the needs ofcustomers.5. Post purchase behaviorAfter purchasing the product the consumer will experience some level of satisfaction anddissatisfaction. The consumer will also engage in post purchase actions and product uses ofinterest to the marketer. The marketer’s job does not end when the product is bought butcontinues into the post purchase period. Customer would like to see the performance of theproduct as he perceived before purchase. If the performance of the product is not as he expectedthen he develops dissatisfactions. Marketer should keep an eye on how consumer uses anddisposes the product. In some durable goods Indian consumer want resale value also. Manyautomobile brands that not able to get resale value lost their market positions.Learning Objective 4: Discuss consumer decision process for new products.Buyer decision process for new products.EDUPROZ Page 64
  • 65. MarketingThe buyer’s decision for existing products and new products varies. You already seen in theexisting product buying decision process consumers have the option to search for the informationand evaluate them. In the new product such options don’t exist. Therefore we should understandhow consumer comes to know about the product. Kotler defined this process as adoption process.According to Philip Kotler Adoption is ‘The mental process through which an individual passesfrom first hearing about an innovation to final adoption’Adoption processFigure 5.51. Awareness: the consumer became aware of the product but lacks information about it.2. Interest: As know previous information available consumer shows interest to get theinformation about the product.3. Evaluation: After receiving the information consumer analyzes the benefits of new productsover any existing products or substitutes and decides whether to buy or not.4. Trial: The consumer tries the new product on a small scale to improve his or her estimate ofits value.5. Adoption: In this stage consumer decides to make full and regular use of the product.Adoption rate:Figure 5.6EDUPROZ Page 65
  • 66. MarketingThe adoption of new product varies from individual to individual.1. 2.5% of the consumers adopt any new product that enters to the market. These consumers arestatus conscious people. Marketer should highlight how the new product will bring the esteem tothe consumer.2. 13.5% of the customers fall into the early adopter categories. In this categories customerobserved the advantage of the new product and the moment the price of the product falls into theaffordable category they buy the product.3. The next group is the biggest one in the adoption process. These group customers are attractedtowards the benefits of the product. They make sure that there are no technical or generalproblems associated with the product. This group contains 34% of the total customers.4. This group consist 34% of customers. The group looks for the quality product at the affordableprices5. The final group is called as laggards. These are traditional and price conscious people. Theyoften take lot of time to adoption of the product.Learning Objective 5:Examine the buying motives and behavioral models.Buying MotivesEDUPROZ Page 66
  • 67. Marketing‘The thoughts, feelings, emotions and instincts that induces customer to buy a product are calledas buying motives’According to Prof D.J. Duncan ‘buying motives are those influences or considerations whichprovide the impulse to buy, induce action and determine choice in the purchase of goods andservices’.Classification of buying motives:Figure 5.71 Product buying motives are those influences and reasons which prompt a buyer to choose aparticular product in preference to others. It may be design, shape, dimension, size, color,package etc…Product buying motives are further classified asa. Emotional product buying motive andb. Rational product buying motiveEDUPROZ Page 67
  • 68. Marketing2 Emotional product buying motives in which buyer decides to purchase a product withoutthinking over the matter logically and carefully. Buyer takes the decisions on the emotions.Following factors provides the list that influence the emotional product buying motives1. Customer attaches the pride with the product.2. Customer try to imitate form others3. Purchase d the goods for affection on any family member.4. Products that provide comfort are usually purchased on the emotions.5. Sexual appeal products are brought on emotional product motives6. The product those used as recreation, hunger or habit products are usually bought emotionally.7. Products those provide distinctiveness or individuality.3 Rational product buying motives: when buyer examines pros and cons of purchasing a productand takes decisions then the behavior is called as rational product buying motives. Buyers will belooking for any of the following factors before taking rational decisions1. The safety or security features provided by the product.2. The value for money provided by the product.3. Suitability and utility of the product.4. Durability of the product.5. Convenience of the product.4 Patronage buying motives are those considerations or reasons that make a buyer patronage aparticular shop in preference to other shops while buying a product.Patronage buying motives are classified into two categories. They area. Emotional patronage buying motives.b. Rational patronage buying motives.b. Emotional patronage buying motives are patronizing the particular shop without logicalthinking or reasoning. Emotional patronize buying motives include the following decisions1. Appearance of the shopEDUPROZ Page 68
  • 69. Marketing2. Visual merchandising in the shop.3. Reference groups influence about one particular shop.4. Shopping in a big mall is a prestige issue.5. Imitating the other reference groups’ members.5 Rational patronage buying motive will arises after buyer analyzing the shop carefully andproviding the information to reference group members. Rational patronage buying motivesinclude the following1. Convenience of the shop to the buyers.2. Value for money provided by the shops.3. Financial schemes and facilities provided by the shop.4. Availability of wide range of goods.5. Reputation of the shop in the area.6. Sales force efficiency to convince the customer.7. Services provided by the sales executives.Buyer behavior models.The influence of social sciences on buyer behavior has prompted marketing experts to propoundcertain models for explaining buyer behavior. Broadly, they include the economic model, thelearning model, the psychoanalytical model and the sociological model.1) The Economic Model: According to the economic model of buyer behavior, the buyer is arational man and his buying decisions are totally governed by the concept of utility. If he has acertain amount of purchasing power, a set of needs to be met and a set of products to choosefrom, he will allocate the amount over the set of products in a very rational manner with theintention of maximizing the utility or benefits.2) The Learning Model: According to the learning model which takes its cue from the Pavlovianstimulus response theory, buyer behavior can be influenced by manipulating the drives, stimuliand responses of the buyer. The model rests on man’s ability at learning, forgetting anddiscriminating. The stimulus response learning theory states that there develops a bond betweenbehavior producing stimulus and a behavior response (S. R. Bond) on account of theconditioning of behavior and formation of habits. This theory may be traced to Pavlov and hisexperiments on salivating dogs. Pavlov’s experiments brought out associations by conditioning.EDUPROZ Page 69
  • 70. MarketingIn his well known research with dogs, a bell was rung every time food was served to a dog.Eventually, the dog started salivating each time upon hearing the bell though no food was served.The dog’s behavior is conditioned; it is related to behavior-producing stimulus (bell ringing) andbehavior response (salivation). The S.R. bond so established causes a set pattern of behaviorlearnt by the object – dog. In terms of consumer behavior, an advertisement would be a stimuluswhereas purchase would be a response.Learning Process: According to the stimulus-response theory, learning is dependent on drive, cue(stimulus), response and reinforcement.Drive: Drive may be defined as any strong stimulus that impels action. It arouses an individualand keeps him prepared to respond. The drives may be classified as primary drives andsecondary drives. Primary drives are based upon innate physiological needs such as thirst,hunger, pain avoidance, and sex. The secondary drives are based upon learning. They are notinnate and are derived from the primary drives. These include the desire for money, fear, pride,rivalry, etc.Cue: Cue or stimulus may be defined as any object in the environment perceived by theindividual. The aim of the marketing man is to find out or create the cue of sufficient importancethat it becomes the drive stimulus or elicits other responses appropriate to his objective. Here, theobjective is to find out those conditions under which a stimulus will enhance the chances ofeliciting a particular kind of response.Response: Response is an answer to a given drive or cue. When a man feels thirsty, he attemptsto get water at any cost. Here attempt to get water is a response to the primary drive of thirst.“Response also includes attitudes, familiarity, perception and other complex phenomena.”Responses may be generalized or discriminatory. Generalized response refers to a uniformresponse to similar though not identical stimuli. Discriminatory response refers to the selectiveresponse to similar stimuli. Undifferentiated products such as cigarettes and detergents normallyelicit generalized consumer responses but by huge advertising outlays companies try to induceconsumers to perceive differences in brands and to make discriminatory responses.Reinforcement: Reinforcement or reward means reduction in drive and stimulus. It has beendefined as “environmental events exhibiting the property of increasing the probability ofoccurrence of responses they accompany.” Thus, when consumption of a product or a brand ofproduct leads to satisfaction of the initiating need (drive/stimulus) there is reinforcement. If atsome later date the same needs are aroused, the individual will tend to repeat the process ofselecting and getting the same product or brand of product. Each succeeding time that product orbrand brings satisfaction, further reinforcement takes place, thus, further increasing thepossibility that in future also, the same product or brand will be bought. This type of behavioralchange, increasing possibility that an act will be repeated, is called learning; reinforcementincreases the rapidity and vigor of learning.3) The Psychoanalytical Model: The psychoanalytical model draws from Freudian Psychology.According to this model, the individual consumer has a complex set of deep-seated motiveswhich drive him towards certain buying decisions. The buyer has a private world with all hisEDUPROZ Page 70
  • 71. Marketinghidden fears, suppressed desires and totally subjective longings. His buying action can beinfluenced by appealing to these desires and longings.The psychoanalytical theory is attributed to the work of eminent psychologist Sigmund Freud.Freud introduced personality as a motivating force in human behavior. According to this theory,the mental framework of a human being is composed of three elements, namely,1. The id or the instinctive, pleasure-seeking element. It is the reservoir of the instinctiveimpulses that a man is born with and whose processes are entirely subconscious. It includes theaggressive, destructive and sexual impulses of man.2. The superego or the internal filter that presents to the individual the behavioral expectations ofsociety. It develops out of the id, dominates the ego and represents the inhibitions of instinctwhich is characteristic of man. It represents the moral and ethical elements, the conscience.3. The ego or the control device that maintains a balance between the id and the superego. It isthe most superficial portion of the id. It is modified by the influence of the outside world. Itsprocesses are entirely conscious because it is concerned with the perception of the outside world.The basic theme of the theory is the belief that a person is unable to satisfy all his needs withinthe bounds of society. Consequently, such unsatisfied needs create tension within an individualwhich have to be repressed. Such repressed tension is always said to exist in the sub-consciousand continues to influence consumer behavior.4. The Sociological Model: According to the sociological model, the individual buyer isinfluenced by society or intimate groups as well as social classes. His buying decisions are nottotally governed by utility; he has a desire to emulate, follow and fit in with his immediateenvironment.5.The Nicosia Model: In recent years, some efforts have been made by marketing scholars tobuild buyer behavior models totally from the marketing man’s standpoint. The Nicosia modeland the Howard and Sheth model are two important models in this category. Both of thembelong to the category called the systems model, where the human being is analyzed as a systemwith stimuli as the input to the system and behavior as the output of the system. FrancescoNicosia, an expert in consumer motivation and behavior put forward his model of buyer behaviorin 1966. The model tries to establish the linkages between a firm and its consumer – how theactivities of the firm influence the consumer and result in his decision to buy. The messages fromthe firm first influence the pre-disposition of the consumer towards the product. Depending onthe situation, he develops a certain attitude towards the product. It may lead to a search for theproduct or an evaluation of the product. If these steps have a positive impact on him, it mayresult in a decision to buy. This is the sum and substance of the ‘activity explanations’ in theNicosia Model. The Nicosia Model groups these activities into four basic fields. Field one hastwo sub-fields the firm’s attributes and the consumer’s attributes. An advertising message fromthe firm reaches the consumer’s attributes. Depending on the way the message is received by theconsumer, a certain attribute may develop, and this becomes the input for Field Two. Field Twois the area of search and evaluation of the advertised product and other alternatives. If thisEDUPROZ Page 71
  • 72. Marketingprocess results in a motivation to buy, it becomes the input for Field Three. Field Three consistsof the act of purchase. And Field Four consists of the use of the purchased item.Unit 6 Business Buyer Behavior IntroductionAny market in which customer buys the product for other than personal consumption is calledbusiness market. This market includes organizational buying, institutional buying andgovernment buying. The market consist very few buyers but they purchase in a very big quantity.These customers are usually found in the industrial towns, tech parks and industrial area. Thedemand for the product in this market is derived i. e depend upon the final consumption of theproduct and service. For example, Demand for car engines will depend on the how manyconsumers will purchase the car. If the number of people who purchase car declines in aparticular month then demand for the engines also goes down. This shows how enginecompanies are depending on the final consumption. The fluctuation in the market is inelastic.The product is purchased only after thorough examination. Therefore it includes more than onemember in the purchasing department. This has resulted in the complex buying behavior.Learning Objective1: Differentiate between consumer behavior and organization behavior.Difference between consumer and business buyer behavior.Table 6.1Learning Objective 2:Discuss the different types of buying situations involved in the organizational buying.EDUPROZ Page 72
  • 73. MarketingBuying situations in the industrial marketing.Buying situations varies to the large extent in the industrial marketing compared to the consumermarkets. The negotiation process and vendor evaluation stages will not be there if companywants to purchase the same material from the existing suppliers. It means for each situationsbuying process changes. Therefore in this section we are discussing the different situationinvolved in the business buying. Industrial marketing usually involves three different types ofbuying situations. They area. New Taskb. Straight re-buy andc. Modified re-buy.1. New task: The stage in which an organization is purchasing a major product for the first time.Therefore company will be having more number of people involved in the decision making. Inthis situation seller try to meet all the buying participants of the organization and convince them.This will be resulted in higher uncertainty and cost for the seller.2. Straight re-buy: In this situation organization follow routine step of informing sellers abouttheir requirements and supply specifications. This is the easiest situation in the organizationbuying. This provides lot of flexibility to both buyers and sellers. Company already has the list ofsuppliers, it gets the information from the floor about their requirements and the same isconveyed to the supplier. After the advent of ERP software things have become simpler andeasier.3. Modifies re-buy: In this stage buyer wants either product modification, price modification,terms modification or suppliers’ modifications. For example, a company X is buying Rs 100,000worth of iron materials from company Y every month. Company would like to reduce the cost ofIron Ore. It starts the negotiation with their suppliers on the new terms and conditions.Learning Objective 3:Understand the buying roles and their importance in industrial marketing.Buying roles in the Industrial marketing.As we discussed in the beginning the difference between the consumer buying process andbusiness buying process, the number of people involved in the decision making are more in theindustrial marketing. Therefore many business organizations constitute the buying center orbuying committee. The characteristics of buying center are listed below1. Several individuals can occupy a given role (e.g. many users / influencers) and one individualcan occupy multiple roles.EDUPROZ Page 73
  • 74. Marketing2. The buying center may include people outside the organization such as government officials,consultants, technical advisors and other members of the marketing channel.3. Different members of the buying centre have different influences, for e.g. the engineeringdepartment may be concerned with actual performance of the product, whereas production maybe more interested in ease of use and reliability of supply.4. Members of buying centre have different personal motivations, perceptions and Preferenceswhich in turn are dependent on – age, income, education, job position, personality, attitudestowards risk and cultureDifferent buying roles involved in the business buying process are 1. Users are people who actually use the product. For example, lathe machine is used by the shop floor employee. This person can tell the specification clearly than any other person. 2. Influencers are people who provide the information required to evaluate the vendor and his products. Example: technical personnel. 3. Buyers: Purchasing persons who put the specification for vendors. These people also evaluate the vendor and select him. 4. Deciders: These people give final consent on the chosen supplierse. A gatekeeper acts as filtering agents between buying committee and sellers. For example, atechnical person may see the vendor quotations and filter it before it goes to buying committees.Learning Objective 4: To analyze the factors that influence the organization buying process.Factors that influences on business buyers.1. Economic developments: Purchasing of materials depend upon the country’s economicconditions. If the economy is growing rapidly usually the consumption also growsproportionately then company should source materials accordingly. The economic health of thenation provides image for the organization too.2. Supply conditions: raw materials required should be matched with the demand condition ofthe company. If there is an irregular or seasonal demand exists then company should adjust theirsupplies. Any shortage of the raw materials will force the company to go out of the company.3. Political and Legal environment: the unstable government will have unpredictable policies.Any change in the government policy will have direct or indirect impact on the company. Forexample, An engineering firm work towards better environment standards in their productsassuming that all automobile companies adhere to the international regulations but thegovernment decided to post pone the regulation standard implementation for 1-2 years the entirematerial manufactured and raw materials will have extra holding and inventory costs.EDUPROZ Page 74
  • 75. Marketing4. Competitive environment: Business buying is very complex. The numbers of buyers are veryfew. Any technology change adopted by the competitor should be carefully observed. If thecompany not able to identify the competitors move survival will become difficult.5. Culture and customs: Every country has its own culture and customs. As we discussed in theprevious unit, why one should not sell beef products in India, in same way business buying isalso influenced by the culture and customs. For example, most of the products produced in Japanare of small size to suit their customers. Any company buying products in Japan should alwayskeep these things in mind.6. Organizational objectives: Purchasing objectives are derived from the organizationobjectives. For example, an organization objective is to reduce the overall cost of 20%. Itspurchasing objectives take this as benchmark and try to reduce the cost by 20%. Some times theywill be forced to cancel the negotiation with a major supplier who may provide value to theorganization in the future to meet the current cost projection.7. Organizational policies and procedures: Companies’ policies like centralization versusdecentralization of buying and selling will have direct impact on the company’s production.8. Organization structure and systems: Lesser the hierarchy more will be the flexibility in theorganization. Companies with more number of hierarchies will have plenty of problems to beaddressed.9. Interpersonal factors: business buying will have different outcome on the basis of authority,status, empathy and persuasiveness that customer and organization posses.10. Individual factors. Age, education, job position, Personality risk attitudes of individual willdetermine the buying behavior of each role and in turn these changes will have direct impact onthe organization buying.Learning Objective 5: Examine the business buying process in the Industrial marketing.Steps in business buying processEDUPROZ Page 75
  • 76. MarketingFigure 6.1Stage 1: Problem recognition1. Problem can be identified from either internal stimuli or external stimuli. Company would liketo launch new product hence it searches for the suppliers who can supply the material andequipments required for the new product.2. External stimuli like trade show, conference also helps the company to identify the problem.Stage 2: Need description: After finalizing the problem, companies will define need description.The need description includes1. Characteristics and quantity of the needed item.2. For the complex products team assessment is required.3. The required items are assessed on the basis of reliability, durability, price, and other attributesneeded in the item.Stage 3: Product specification:Organizations develop detailed product specification with value analysis. In the value AnalysisCompany analyzes the components and their production process. Here emphasis is given to findthe alternative methods of producing the components and finding the optimum method that suitsthe company.Stage 4: Supplier searchThe buyer now tries to identify the most appropriate suppliers. The buyer can examine tradedirectories, do a computer search, phone other companies for recommendations, watch tradeadvertisements, and attend trade shows. The supplier’s task is to get listed in major businessdirectories, develop a strong advertising and promotion program, and build a good reputation inthe marketplace. Suppliers who lack the required production capacity or suffer from a poorreputation will be rejected. Those who qualify may be visited to examine their manufacturingfacilities and meet their personnel. Qualified suppliers are shortlisted for further process.EDUPROZ Page 76
  • 77. MarketingStage 5: Proposal solicitationThe buyer will now invite qualified suppliers to submit proposals. Some suppliers will send onlya catalog or a sales representative. Where the item is complex or expensive, the buyer requires adetailed written proposal from each qualified supplier. The buyer will invite qualified suppliersto make formal presentations.Thus business marketers must be skilled in researching, writing and presenting proposals. Theirproposals should be marketing documents, not just technical documents. Their oral presentationsshould inspire confidence. They should position their company’s capabilities and resources sothat they stand but from the competition.Stage 6: Supplier selectionThis stage is also known as vendor selection. During this stage companies will prepare thechecklist. Weightages are assigned against each checklist point and evaluated. Some of theimportant attributes those commonly found in the vendor evaluations area. Qualityb. Deliveryc. Communicationd. Competitive prices.e. Servicingf. Technical adviceg. Performance historyh. ReputationStage 7: Order routine specifications:The buyer now negotiates the final order with the chosen supplier(s), listing the technicalspecifications; the quantity needed, the expected time of delivery, return policies, warranties andso on. In case of MRO items (Maintenance, Repair and Operating items), buyers are increasinglymoving towards blanket contracts rather than periodic purchase orders. Writing a new purchaseorder each time stock is needed, is expensive. Nor does the buyer want to write fewer and largerpurchase orders because that means carrying more inventories. A blanket contract establishes along-term relationship where the supplier promises to re-supply the buyer as needed on agreedprice terms over a specified period of time. The stock is held by the seller, hence the namestockless purchase plan. The buyer’s computer automatically sends an order to the seller whenEDUPROZ Page 77
  • 78. Marketingstock is needed. This locks the supplier with the buyer and makes it difficult for out-suppliers tobreak in unless the buyer becomes dissatisfied with the in-supplier’s prices, quality or service.Stage 8: Performance reviewIn this stage organization review the performance of the suppliers. This will help it to decidewhether to continue with existing suppliers or should search for the new vendor.These eight stages are very much essential for new task but not necessary for straight re-buy ormodified re-buy. To know which stages are important in the new task, a straight re-buy ormodified re-buy we will study Buy- grid ModelBuy grid modelBuy grid model is developed to understand the business buying process in three differentbusiness buying situationsTable 6.2.EDUPROZ Page 78
  • 79. MarketingSummary1. In Modified re-buy stage, buyer wants either product modification, price modification, termsmodification or suppliers’ modifications.2. Buy grid model is developed to understand the business buying process in three differentbusiness buying situations.3. Supplier selection stage is also known as vendor selection.Unit 7 Segmentation, Targeting and PositioningIntroductionMarket segmentation is the starting step in applying the marketing strategy. In this process themarketer divide the market into homogeneous sub markets by understanding the needs,perceptions and expectations of the consumers. On the basis of segmentation, the company willEDUPROZ Page 79
  • 80. Marketingprepare and follow different marketing programs for different segments to ensure better customerrelationship. This unit deals with the bases of market segmentation, its targeting and positioningits propositions in the mind of consumer in detail.Learning Objective 1: Explain the concepts and benefits of market segmentation.Concept of Market SegmentationMarket Segmentation is the process of dividing a potential market into distinct sub-markets ofconsumers with common needs and characteristics.For example, Cadbury India operates in three different markets namely, Malted foods, cocoapowder and drinking chocolates and chocolates and sugar confectionary.Figure 7.1The malted food market is divided into two different segments i.e. white malted food drinks andbrown malted food drinks. Cadbury India positioned its flagship brand Bournvita in the brownmalted food drinks.Benefits of Market Segmentation1. Understanding the needs of Consumers:2. To adopt better positioning strategies.3. Proper allocation of marketing budget.4. Helps in preparing a better competitive strategy.5. Provides guidelines in preparing media plan of the company.6. Different offerings in different segments enhance the sales.7. Customer gets more customized product.EDUPROZ Page 80
  • 81. Marketing8. Helps Company to identify niche markets.9. Provides opportunities to expand market10. Encourages innovations:Learning Objective 2: Mention the requisites of effective segmentation.Requisites of Effective SegmentationTo be useful, segmentation of market must exhibit some characteristics that are as follows:1. Measurable and Obtainable: The size, profile and other relevant characteristics of thesegment must be measurable and obtainable in terms of data. If the information is not obtainable,no segmentation can be carried out. For example, Census of India provides the data on migrationand education level, but do not specifies how many of the migrated employees are educated andif educated how many are there in white color jobs. If a company wants to target white coloremployees who are migrated to particular city, will not able to measure due to non availability ofdata.2. Substantial: The segment should be large enough to be profitable. For consumer markets, thesmall segment might disproportionably increase the cost and hence products are priced too high.For example, when the cellular services started in India cost of the incoming calls and outgoingcalls were charged at Rs 12/minute. As the number of subscribers grew, incoming calls becamefree. Further growth of subscribers resulted in lowering tariffs to the lowest level in the world.3. Accessible: The segment should be accessible through existing network of people at aaffordable cost. For example, Majority of the rural population still not able to access the internetdue to high cost and unavailability of connections and bandwidth.4. Differentiable: The segments are different from each other and require different 4Ps andprograms. For example, Life Insurance Corporation of India needs separate marketing programsto sell their insurance plans, unit plans, pension plans and group schemes5. Actionable: The segments which a company wishes to pursue must be actionable in the sensethat there should be sufficient finance, personnel, and capability to take them all.The process of Market segmentation:Figure 7.2EDUPROZ Page 81
  • 82. Marketing1.Identify existing and future wants in the current market.Marketers must examine the changing needs of the customer. This process provides opportunityto examine whether customers are satisfied with the existing products or not. If they are notsatisfied what are the features they are looking at. It also helps to test the innovative conceptsthat company has, commercially viable or not. For example, Titan, wrist watch manufacturerfrom Tata group should analyze whether customer are satisfied with the time accuracy in thewatch. It should also analyze what are the other features customer is looking in the watch. It maybe style, calculator, voice recorder, jewels studded or pulse monitor. In this case, time accuracybecame existing want and other features become future wants.2. Examine the attributes that distinguish among segments.In this process marketers should segregate different types of wants into homogeneous categories.This may be on the basis of product features, lifestyle or behavior. For example, Titan shouldanalyze how style, calculator, voice recorder, jewels studded and pulse monitor attribute aredifferent. Is there any possibility of bringing some of these features together? If yes what are theattributes that makes it homogeneous. To illustrate, student community may be interested in styleand also wants calculator.3. Evaluate the proposed segment attractiveness on the basis of measurability, accessibility,and size.EDUPROZ Page 82
  • 83. MarketingSegments selected in second steps should be evaluated against the requisites i.e. measurability,accessibility, substantial, actionable and differentiability. Company’s further programs willdepend on the outcome of this process.Titan should examinea. How big this student segment who like style and also wants calculator?b. How to get the data pertaining to these students?c. Whether this segment is accessible to existing Titan showroom?d. How this segment is different from current segments? If selected what value this proposedsegment adds to the company.Learning objective 3: Explain the bases of market segmentation.Bases for Segmenting Consumer MarketsFigure 7.3EDUPROZ Page 83
  • 84. Marketing1) Geographic segmentation: Dividing the market into different geographical units such asnations, states, regions, cities or neighborhoods. The company can operate in one or a fewGeographic areas or operate in all but pay attention to local variations. For example, Bennett,Coleman and co Ltd divided markets according to geographical units for their tabloids. InBangalore the tabloid is known as Bangalore Mirror where as it is Mumbai Mirror in Mumbai.2) Demographic Segmentation: In demographic segmentation the market is divided into groupson the basis of variable such as age, family size, family life-cycle, gender, income, occupation,education, religion, race, generation, nationality and social class. Demographic variables are themost popular bases for distinguishing customer groups. One reason is that consumers’ wants,preferences and usage rates are often associated with demographic variables. Demographicvariables are easy to measure. Even when the target market is described in non-demographicterms, the link back to demographic characteristics is needed in order to estimate the size of thetarget market and the media that should be used to reach it efficiently. Some of the demographicvariables used are :a) Age and Life-Cycle Stage: Consumers’ wants and abilities change with age. On the basis ofage, a market can be divided into four parts viz., children, young, adults and old. For consumersof different age groups, different types of products are produced. For instance, different types ofready-made garments are produced for consumers of different age groups. A successfulmarketing manager should understand the age group for which the product would be most suitedand determine his marketing policy, pricing policy, advertising policy etc., accordingly.For example, HUL launched ‘pepsodent kids’ for small children.b) Gender: Gender segmentation has long been applied in clothing, hair-styling, cosmetics andmagazines. For example, Emami segmented its personal care business on the basis of gender. Forwomen, it is having Emami naturally fair, and for men it is fair and handsome.c) Income: Income segmentation is a long-standing practice in such product and servicecategories as automobiles, clothing, cosmetics and travel. However, income does not alwayspredict the best customers for a given product.For example, Baja Auto limited, a leading automobile company, different bikes for differentcommuters. For entry level (less than Rs35000) it is Bajaj CT 100, for mid segment (greater thanRs35000 but less than Rs60000) it is pulsar and for the upper segment greater than Rs 60000Avenger and Eliminator is positioned.3) Psychographic Segmentation: In Psychographic segmentation, buyers are classified intodifferent groups on the basis of life-style or personality and values. People within the samedemographic group can exhibit very different psychographic profiles.a) Life-style: People exhibit different life-styles and goods they consume express their life-styles. Many companies seek opportunities in life-style segmentation. But life-style segmentationdoes not always work.EDUPROZ Page 84
  • 85. MarketingFigure 7.4One of the most used psychographic profiling schemes is called VALSTM. Developed by SRIInternational, Inc., its first version groups the entire U.S. population into eight groups, based onthe identities they seek and implement via marketplace behaviors.The Eight VALSTM Group: – Using the self-orientation and resources dimensions, VALS defineseight segments of adult consumers who have different attitudes and exhibit distinctive behaviorand decision making patterns. These segments are Innovators Thinkers, Achievers, Experiencers,Believers, Strivers, Makers and survivorsInnovators are successful, sophisticated, active, take-charge people with high self-esteem andabundant resources. They are leaders in business and government and are interested in growth,innovation, and change. They seek to develop, explore and express themselves in a variety ofways, sometimes guided by Principle and sometimes by a desire to have an effect or to make achange. They seek to develop, explore and express themselves in a variety of ways, sometimesguided by principle and sometimes by a desire to have an effect or to make a change. Image isimportant to them, not as evidence of status or power but as an expression of their taste,EDUPROZ Page 85
  • 86. Marketingindependence, and character. They possess a wide range of interests, are concerned with socialissues, and show a cultivated taste for the finer things in life.Thinkers are mature, satisfied, comfortable, reflective people who value order, knowledge, andresponsibility. Most are well educated and in (or recently retired from) professional occupations,content with their career, families, and tend to center around the home. Thinkers have a moderaterespect for the status quo institution, but they are open minded to new ideas and social changes.They tend to base their decision on firmly held principles and consequently appear calm and self-assured. Thinkers are conservative, practical consumers, and the universal values ofperformance, service, and price are more important than person values (e.g., social and emotionalvalues).Achievers are successful career ad work oriented people who like to feel in control of their live.They value predictability and stability over risk. They are deeply committed to work and family.Work provides them with a sense of duty, material rewards, and prestige. Their social lives arecentered on family, church, and career. Achievers live conventional lives are phonicallyconservative, and respect authority and the status quo. Image is important to them: they favorestablished prestige products and services that demonstrate success to their peers.Experiencers are young, vital, enthusiastic, impulsive, and rebellious. They seek variety andexcitement, savoring the new, the offsets, and the risky. Still in the process of formulating lifevalues and patterns of behavior they quickly become enthusiastic about new possibilities but areequally quick to cool. At this stage in their lives they are politically uncommitted, uninformed,and highly ambivalent about what they believe. Their energy finds an outlet in exercise, sports,outdoor recreation, and social activities. Experiences are avid consumer and spend much of theirincome on clothing, fast food, music, movies and video.Believers are conservative, conventional people with commitment to family, church, community,and the nation. Living by a moral code is very important to them. As consumers, Believers areconservative and predictable and favor American products and established brands. Their income,education, and energy are modest but sufficient to meet their needs.Strivers seek motivation, self-definition and approval from the world around them. They strive tofind a secure place in life, unsure of themselves and low on economic, social, and psychologicalresource. Strivers are concerned about the opinions and approval of others. Money definessuccess for Strivers, who don’t have enough of it and often feel that life has given them a rawdeal. Strivers are impressed by possessions, but what they wish to obtain is often beyond theirreach.Makers are practical people who have constructive skills and value self-sufficiency. They livewithin a traditional context of family, practical work and physical recreation and have littleinterest in what lies outside that context. Makers experience the world by working in it, buildinga house, raising children, fixing a car, or canning vegetable and have enough skill, income andenergy to carry out their projects successfully. Makers are politically conservative, suspicious ofnew ideas, respectful of government authority and organized labor, but resentful of governmentintrusion on individual rights. They are unimpressed by material possessions other than thoseEDUPROZ Page 86
  • 87. Marketingwith a partial or functional pursuing pressed by martial possession other than those with apractical or functional purpose, such as tools, utility vehicles, and fishing equipment.Survivors tend to be chronically poor, ill-educated, low skilled, elderly and concerned about theirhealth. Preoccupied with the urgent needs of the present moment, they do not show a strong self-orientation. Their chief concerns are for security and safety. Survivors are cautious consumers.They represent a very modest market for most products and services but they are loyal to favoritebrands.b) Personality: Marketers have used personality variables to segment the markets. They endowtheir products with brand personality that corresponds to consumer personalities.c) Social Class: It has a strong influence on preference in cars, clothing, home furnishings,leisure activities, reading habits etc. Many companies design products and services for specificsocial classes.Behavioral Segmentation or Consumer Response Segmentation:In behavioral segmentation, buyers are divided into groups on the basis of their knowledge orattitude towards the use of, or response to a product. Some marketers believe that behavioralvariables are the best starting points for constructing market segments.a) Occasions: According to the occasions, buyers develop a need, purchase a product or use aproduct. It can help firms expand product usage. A company can consider critical life events tosee whether they are accompanied by certain needs. For example, Tanishq a TATA enterpriseoffers schemes and promotions for Akshaya Thrutiya ( auspicious day to purchase jewellary)b) Benefits: Buyers can be classified according to the benefits they seek. For example, PeterEngland, a madhura garment brand positioned its wrinkle free trousers on the basis of benefits.c) User Status: Markets can be segmented into non-users, potential users, first time users andregular users of a product. Each market segment requires a different marketing strategy. Thecompany’s market position will also influence its focus. Market leaders will focus on attractingpotential users, whereas smaller firms will try to attract current users away from the marketleader. For example, Kishkinda resort near Hampi classifies its customers according to thischaracteristic. Resort believes that locals falls into non- user category, affluent class who comesto Hampi as potential users, foreigners as first time users rich people near Hampi who frequentlycome there as regular users.d) Usage Rate: Markets can be segmented into light, medium and heavy product users. Heavyusers are often a small percentage of the market but account for a high percentage of totalconsumption. Marketers prefer to attract one heavy user rather than several light users and theyvary their promotional efforts accordingly.For example, Alan Paine textile brand, offered 4 cotton trousers for Rs 999. Company isinterested in getting profit from sales volume.EDUPROZ Page 87
  • 88. Marketinge) Loyal Status: Consumers have varying degrees of loyalty to specific brands, stores and otherentities. Buyers can be divided into four groups according to brand loyalty status.a) Hard-core Loyal: Consumers who buy one brand all the time. For example, customer may beusing only BSNL cellular services though there are different options available.b) Split Loyal: Consumers who are loyal to two or three brands. For example, consumer may gofor tax savings schemes of post offices and Life Insurance Corporation of Indiac) Shifting Loyal: Consumers who shift from one brand to another. For example, consumer whoused Nokia cell phones starts buying Sony- Ericsson mobiles.d) Switchers: Consumers who show no loyalty to any brand. When there is a low involvementand few significant perceived brand differences consumer try to purchase different brands in thecategory. To illustrate, customer who bought cinthol wants to try Medimix, Mysore sandal,Himalaya, Santoor, Chandrika etc…A company can identify its product’s strengths by studying its Hard-core Loyal. By studying itsSplit Loyal, the company can pinpoint which brands are most competitive with its own. Bylooking at customers who are shifting away from its brand, the company can learn about itsmarketing weaknesses and attempt to correct them.(f) Buyer-Readiness Stage: A market consists of people in different stages of readiness to buy aproduct. Some are unaware of the product, some are aware, some are informed, some areinterested, some desire the product and some intend to buy. The relative number makes a bigdifference in designing a marketing program. For example, People may be aware of Aqua guardbut don’t know much about it.Learning Objective 4: Identify the appropriate target market for given segment.TargetingTargeting is defined as a group of people or organizations for which an organization designs,implements and maintains the marketing mix.Once the bases for segmentation are selected, you have to identify the people or organization towhich the product meant. Organizations may not differentiate their customer or it may havedifferent customer for different products. In the next section we will study how to identify thetarget customers.Selecting Target Market SegmentsDepending upon the emerging patterns of market segmentation, homogeneous preference(showing no natural segments) as in case of soft drinks sale by Pepsi and Coca-Cola), diffusedpreference (showing clear preferences as in case of automobile market), and clustered preferenceEDUPROZ Page 88
  • 89. Marketing(market showing natural segments as in case of occupation having impact on the types of clothesworn), a company chooses its market segmentation strategy.A) Undifferentiated Marketing: It is a market coverage strategy in which the company treatsthe target market as one and does not consider that there are market segments that exhibituncommon needs. The company focuses on the centre of the target market to get maximumadvantage. The feature of ‘one product-all segments’ calls for presenting one marketing-mix forthe target market. For example, the Coca-Cola Company sells Coke, Limca, Thums-up etc., anddoes not distinguish the target audience.B) Differentiated Marketing: It is a market coverage strategy in which the company goes forproper market segmentation as depicted by its analysis of the total market. The company,therefore, goes for several products or several segment approach which calls for preparingdifferent marketing mixes for each of the market segment. This strategy is followed byHindustan Lever Limited which sells different soaps (Life Buoy, Lux, Rexona, Liril, Pears etc.)and each of them has its own market. Thus, the company creates segments in the soap marketand not in toiletries market (including soaps, detergents, toothpaste, etc.)C) Concentrated Marketing: It is a market coverage strategy in which company follows ‘oneproduct-one segment’ principle. For example, Ashok Leyland produces large chassis of machinewhich can be used for buses and trucks. The manufacturer gets maximum knowledge about thesegment’s needs and therefore acquires special reputation. This strategy can also help the smallcompany to stand against a large corporation because the small company can create niches in itsone-product one-segment approach by providing maximum varieties.Choosing a Market Coverage Strategy: The below table depicts an overview of the threemarket coverage strategies will help to choose one for a particular company. Table 7.1 provides asnap-shot view.Table 7. 1: Comparison of Market Coverage StrategiesGiven the comparison of different coverage strategies, it is easy to locate the relevant strategiesas shown in Table 7.2.Table 7.2: Choosing a Market Coverage StrategyEDUPROZ Page 89
  • 90. MarketingSatisfying productsGiven the above table, the firm’s resources and the product’s requirement in its present form (byall or few) would decide the choice of a particular market- coverage strategy. Finally, thecompetitor’s adaptation of a particular strategy should be considered for deciding company’sown strategy. For example, Coca-Cola starts segmenting soft drinks market and targets family,Pepsi cannot ignore it because it would be suicidal for them (segmentation would providedifferentiation of products more easily).Learning Objective 5:Analyze the positioning strategies of companies on the basis of product differentiationMarket PositioningEach firm needs to develop a distinctive positioning for its market offering.Positioningis the act of designing the company’s offering and image to occupy a distinctive place in thetarget market’s mind. Each company must decide how many differences to promote to its targetcustomers. Many marketers advocate promoting only one central benefit and Rosser Reevescalled it as “a unique selling proposition”. Some of the USPs includes “best quality”, “bestservice”, “Lowest price”, “best value”, “safest”, “more advanced technology” etc. If a companyhammers away at one of these positioning and delivers on it, it will probably be best known andrecalled for this strengths.Not everyone agrees that single-benefit positioning is always best. Double-benefit positioningmay be necessary if two or more firms claim to be best on the same attribute. There are evencases of successful triple-benefit positioning.As the companies increase the number of claims for their brand, they risk disbelief and a loss ofclear positioning. In general, a company must avoid four major positioning errors.1) Under positioning: Some companies discover that buyers have only a vague idea of thebrand. The brand is seen as just another entry in a crowded marketplace.EDUPROZ Page 90
  • 91. Marketing2) Over-positioning: Buyers may have too narrow image of the brand.3) Confused Positioning: Buyers might have a confused image of the brand resulting from thecompany’s making too many claims or changing the brand’s positioning too frequently.4) Doubtful Positioning: Buyers may find it hard to believe the brand claims in view of theproduct’s features, price or manufacturer.Positioning maps:Two dimensional graphs of how a product, brand or company is perceived versus competition.Before identifying the positioning strategies for the product marketer prepares its perceptualmaps. These maps are drawn on important buying dimensions of consumer for companyproducts as well as competitor products.How to construct Position maps?1. Evaluate the buying dimensions of customer2. Select two buying dimensions of consumer for example price and quality.3. Identify the relative market share: relative market share is the ratio of company’s market shareto its largest competitors’ share.4. Draw the circles according to relative market share on two dimension graphPosition map for Toilet soapsEDUPROZ Page 91
  • 92. MarketingBases for positioning the productOvercoming the positioning difficulties enables the company to solve the marketing-mixproblem. Thus seizing the “high-quality position” requires the firm to produce high qualityproducts, charge a high price, distribute through high-class dealers and advertise in high-qualitymedia vehicles.The bases for positioning strategies that are available are:1 Attribute Positioning: A company positions itself on an attribute such as size or number ofyears in existence. Sun feast position its snacky brand as bigger lighter and crisper. (Figure 7.5) Figure 7.5EDUPROZ Page 92
  • 93. MarketingFigure 7.62 Benefit Positioning: The productis positioned as the leader in a certain benefit.Automotive: Hyundai SantroHeadline: India’s best-loved family car is now also India’s simplest car to drive.Subhead: Hyundai introduces Santro Zip plus Automatic.No shifting gears, no clutch, no problems.Baseline: The simplest car to drive.( Positioning)3 Use or Application Positioning: Positioning the product as best for some use and application.For Example, Kenstar positioned its product as unexpectedly cold.( figure 7.7)Figure 7.7 Figure 7.8EDUPROZ Page 93
  • 94. Marketing4 User Positioning: Positioning the product as best for some user group.In this advertisement( Figure 7.8) of Parle –G, the boy was positioned as rock star. Thisadvertisement basically targets the kids and boys.5 Competitor Positioning: The product claims to be better in some way than a namedcompetitor. In this advertisement( Figure 7.9) Mathrubhumi base line says ‘In the wake of ABCresults, Mathrubhumi celebrates the addition of 33,960 copies while nearest competitorlaments the loss of 7,258 copies. Planners, take note’. It is directly mentioning its andcompetitors sales of newspaper.Figure 7.9 Figure 7.106 Product Category Positioning: The product is positioned as the leader in a certain productcategory.Bajaj CT 100 was positioned as leader in the entry segment bikes.( Figure 7.10)EDUPROZ Page 94
  • 95. Marketing7 Quality or Price Positioning: The product is positioned as offering the best value.Figure 7.11The vegetable oil brand dhara position it self as ‘anokhi shuddata, anokha asar’. This means,company offers unique purity and unique effect.Summary· Market Segmentation is the process of dividing a potential market into distinct sub-markets ofconsumers with common needs and characteristics.· The size, profile and other relevant characteristics of the segment must be measurable andobtainable in terms of data.· Target marketing helps the marketer to identify the markets – the group of customers for whomthe product is designed.· Buyers can be classified into four groups based on brand loyalty status:a) ‘Hard-core Loyal’ are those consumers who buy one brand all the time.b) ‘Split Loyal’ is those consumers who are loyal to two or three brands.c) ‘Shifting Loyal’ are those consumers who shift from one brand to another.d) ‘Switchers’ are those consumers who show no loyalty to any brand.· Positioningis the act of designing the company’s offering and image to occupy a distinctive place in thetarget customers’ mind.EDUPROZ Page 95
  • 96. MarketingUnit 8Product Management: Decisions, Development AndLifecycle StrategiesIntroductionProduct: A good, service, person, place, events or organizations offered to consumers to satisfyhis need or want.A good is a tangible product, which can be seen and touch. These tangible items can be producedin bulk and inventoried. For Example, Switches from Bajaj Electricals are goods.A service is an intangible product, which requires simultaneous consumption and production.These are also perishable in nature. For example, A Wockhard hospital offers heart surgery,which consumers can not see but need to undergo when there is a pain in the heart. Hencesurgery a service, is perishable in nature, need to be produced and consumed simultaneously.Differences between goods and services:Table 8.1Goods Services 1. Tangible Intangible. 1. Inventoried Simultaneous production and consumption. 1. Non perishable Perishable 1. Homogeneous HeterogeneousA product may be person also. Here marketer tries to buy and sell the celebrities or sportspersons of a league or club etc… For, example, Board of cricket control in India (BCCI) asks itsIndian premier league (IPL) teams to buy Iconic players and foreign players for certain price.An event is also considered as product. Many event management companies earn their revenueby selling tickets and advertisement space at the event. The following example explains how anevent can be marketed.Figure 8.1EDUPROZ Page 96
  • 97. MarketingAn organization is also considered as a product. It can be bought and sold on the basis of valueof the firm. To make it more clear Tata’s bought Tetley for £271mn on 27th February 2000Many state governments and central governments sell their places to get the pie in the tourismmarket. Here governments provides advertisements of a place to attract tourists from India andabroad. For example, Karnataka government under ‘one state many world’ campaign highlightedhistorical places, wildlife, waterfalls etc… In the following advertisement it provides the inputson Hampi to tourists, a historical place in Karnataka.Figure 8.2EDUPROZ Page 97
  • 98. MarketingLearning Objective1: Analyze how products are classified.Levels Of Product1. Core product: This is the fundamental goods or service offered to the consumer. E.g. Hospitalservices2. Generic product: This is the basic version of the product. E.g. Hospital having doctors, nurses,beds and laboratories.3. Expected product: The minimum attributes consumer expects in the product. E.g. Hospitalshould have qualified doctors, good service and proper amenities.4. Augmented product: Inclusion of value added services to the expected product to distinguish itfrom competitors. E.g. Online or tele medicine facilities, expert knowledge sharing, 24 hourambulance service etc…5. Potential product: These are future products provided by the company which customer didn’tanticipate. Ultimately consumer will be delighted by this product. E.g. Medical insurance fromthe hospital, after service care etc…Classification of ProductsTable 8.2EDUPROZ Page 98
  • 99. MarketingProducts are classified into two broad categories. They are consumer products and businessproducts.Consumer products are purchased by the consumer for his personal consumption.Business products: These products are purchased by business concern for further productdevelopmentConsumer ProductsAs these products are purchased by the final consumer for his own consumption, the market isvery big. The large market need to serve different needs of consumer. Therefore company shouldcreate different types of products. Hence consumer products are classified into four differentcategories. They area. Convenience goods.b. Shopping goodsc. Specialty goodsd. Unsought goods.a. Convenience goods: The fast moving consumer goods, which are purchased regularly withless amount of effort.EDUPROZ Page 99
  • 100. Marketing1. These are purchased frequently.2. Customer involvement is very low.3. Price of the product is very low.4. Intensive distribution is used to reach the consumer.5. The stock turnover is high.6. Aggressive promotion is requiredi. Example: soaps and detergents. 1. Shopping goods: High consumer involvement products in which consumer process the information of product suitability, quality and price.Comparing with convenience goods, shopping goods are purchased less frequently. Consumertakes lot of time to search and evaluate the information. These products are available in selectedoutlets. The price of the product is very high. For example, a consumer want to purchasewashing machine will collect the information on type of washing machine, type of control,loading, wash method, pre wash, delicate wash, cycle time, after sales service, sensors and waterconsumption.c. Specialty goods: A tangible product for which a consumer posses high brand loyalty andready to wait, or spend timei. Consumers are having strong brand loyalty.ii. Usually companies adopt premium pricing strategy.iii. Exclusive distribution and selective communication strategies are adopted.To illustrate, a consumer is willing to pay Rs 32000 for Bose Digital home theater thoughcompetitors’ products are available at Rs 15,000 to Rs 25000.d. Unsought goods: These products are called unsought because consumer usually unaware orignorant to purchase. Marketers need heavy promotion activities to educate and sell theirproducts.Insurance is the product which most of the consumer are aware but very few are willing topurchase. Life Insurance Corporation trains its agents to promote and sell aggressively. Theseagents provide lot of inputs regarding insurance to consumers.Business Products ClassificationEDUPROZ Page 100
  • 101. MarketingBusiness products are purchased by the business consumer who uses this product as a material,part, capital item or service in producing his/her final product. For example, CET offers range ofservices to Birla copper, Jindal vijayanagar steel and Mukund limited. These services are used todevelop the final products of these companies.Table 8.3Centre for Engineering & TechnologyCenter for Engineering & Technology (CET), an ISO: 9001 certified organization is the design,engineering & consultancy unit of SAIL. It has its Head Office at Ranchi, Sub Centers at Bhilai,Durgapur, Rourkela, Bokaro, Burnpur & Bhadravati, Unit Offices at Bangalore, and New Delhifor formulation of Interplant Standards for Steel Industry. As a solution provider for all projectneeds, CET had been rendering complete range of services not only to the Steel Plants underSAIL but also to various clients other than SAIL – both within and outside the country. Some ofthe important clients other than SAIL include EGITALEC (Egypt), Ashok Steel (Nepal),Chittagong Steel Mills (Bangladesh), Birla Copper, Mukand Ltd., Jindal Vijayanagar Steels Ltd.,National Iron & Steel Co., Hindustan Zinc Ltd., National Mineral Development Corporation andRomelt- SAIL (India) Ltd., CET is also the nodal agency for acquisition and lateral transfer oftechnologies within SAIL plants.The range of services includes conceptualization, project evaluation & appraisal, projectconsultancy, design & engineering and project management in the areas of iron and steel making.Apart from this, CET has been providing its services in the related areas like mine planning anddevelopment, infrastructure development, industrial piping, industrial warehousing, materialhandling system, industrial pollution control and environment management systems, watersupply and sanitation, town planning, power projects, etc(Source: products are classified into three categories. They are 1. Materials and parts. 2. Capital items 3. Supplies and services. 4. Materials and parts: These products are further classified as raw materials and manufactured material and parts.EDUPROZ Page 101
  • 102. Marketing 5. Materials are classified into raw materials and manufactured materials and parts.Raw materials are of two types firstly, Natural products and secondly, Farm products.Natural products are extracted and used for further product development. For example, Orexminerals private limited supplies iron ore to Adani exports limited, Nobel resources and tradingprivate limited and Sino steel India private limited.Farm products are also used in further product development. For example, Parle agro divisionsupplies required wheat for the production of biscuits.Manufactured materials are further classified into two types. They are component parts andcomponent materials.Component parts. For example, Melco Precisions private limited supplies Heat resistant steel toGrasim, NTPC and NFL for further product development.Component materials These are also called as original equipment manufacturer products. Thesecompanies’ products are directly fitted in the final product. For example, MRF tyres are directlyfitted in Maruti Udyog Limited cars.b. Capital items includes developing the building( for example, L & T and Siemens developingBangalore International Airport) Fixed equipments( for example, Lenovo supplying computers toManipal university) Accessory equipments( for example, Hindustan Everest tools limited sells itsspanners and pliers to industrial customers) and office equipments ( HP supplying fax machine toShristi automation private limited)c. Suppliers and services: Supplies includes operating supplies( Castrol sells its lubricants toVRL limited) maintenance and repair services (Eagle securities service to corporate clients)Product HierarchyEDUPROZ Page 102
  • 103. MarketingThe different stages in the product and their attributes are listed belowTable 8,31. Need The core need that underlies the product familyfamily :2. Product All the product classes that can satisfy a core need with reasonable :3. Product A group of products within the product family recognized as having a certainclass : functional coherence A group of products within a product class that are closely related because they4. Product function in a similar manner or are sold to the same customer groups or areline : marketed through the same types of outlets or fall within given price ranges.5. Product Those items within a product line that share one of several possible forms of thetype : products. The name associated with one or more items in the product line that is used to6. Brand : identify the source or character of the item A distinct unit within a brand or product line that is distinguishable by size, price,7. Item : appearance, or some other attribute.(Adopted from Kotler Philip, Marketing Management)Learning Objective 2: Discuss the product line and product mix strategies.Product line strategiesProduct line: The group of related products which uses same marketing effort to reach theconsumer.The product line identifies profitable and unprofitable products and helps in allocation ofresources according to that. The product line understanding helps the marketer to take lineextension, line pruning and line filling strategies of the company.Pidilite industries, the adhesives and chemical company have following group of related products(or product lines) in consumer and business markets.Consumer market.1. Adhesives and sealants.2. Art materials and stationeries.3. Construction chemicals.4. Automotive chemicalsEDUPROZ Page 103
  • 104. Marketing5. Fabric careBusiness market.1. Industrial adhesives.2. Textile chemicals.3. Organic pigment powders.4. Industrial resins and5. Leather chemicals.PRODUCT LINE DECISIONS:The major product line decisions area. Product line length:b. Product line stretchingc. Product line fillingd. Product line pruning.a. Product line length: The number of items in the product line is called the product line length.Company should decide whether it requires longer chain or shorter length. The decision dependsupon the objective of the company, competitive environment and profitability. If the chain isshort company can add new products and if it is lengthy company can reduce the number ofproducts. For example, Pidilite’s adhesives and sealants line has following 11 items in theproduct line. Hence the length of product line is 11 1. White Glue 1. Paper Glue 1. Glue Stick 1. Instant Adhesive 1. Epoxy Putty 1. Epoxy Adhesive 1. PVC Insulation Tape 1. Silicone Sealants 1. Contact Glue 1. All Purpose Glue 1. Maintenance SprayEDUPROZ Page 104
  • 105. Marketing 1. Product line stretching: Company lengthens its products line either by stretching upwards or downwards or both ways. Line stretching decision depends on three situationi. Company which operates in high end market may come up with mid class or low class targetedproducts.ii. The company which operates in lower end of market may come up with high end marketproducts.iii. If the company operates in mid segment and comes out with low end product as well as highend product then it is stretching both ways.To explain let me take an example of Maruti Suzuki limited. Company launched its first productMaruti 800 in the year 1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlierthan Maruti 800 and targeted for higher segment. This shows that company extended its productline upwards or in short, upward stretch.A Tata motor is planning to launch their Rs 1 Lakh car NANO in the year 2008. The companywhich was targeting upper class and middle class with their products SUMO and Indicarespectively has stretched downwards to reach another segment. This illustrates the downwardstretch.Toyota Kirloskar limited which extended their line from Qualis and Corolla to Innova andCamry, is planning to come out with small car in India. This clearly illustrate the two way stretchof the product line. 1. Product line filling: Adding more items in the present line. For example, in the year 2000 Maruti Suzuki launched Alto. This product was between Maruti 800 and Maruti Zen. Here company was trying to fill the gap existed in the segment by introducing ALTO i.e. line filling. 2. Product line pruning: removing the unprofitable products form the product line. Toyota Kirloskar phased out their well known brand Qualis when it thought the brand is not adding value to the product line.Product mix strategiesProduct mix: The number of product line and items offered by marketer to the consumerA company’s product mix has four different dimensions. They are product mix width, productmix length, and product mix depth and product mix consistency.Table 8.4 House hold Utensil AlliedFabric care Fragrances Personal care insecticide cleaners businessEDUPROZ Page 105
  • 106. Marketing Jeeva Natural Exo dishUjala supreme Maxo Maya (Coconut Milk with wash bar cyclothrin coil Milk Protein, Coconut Continental(9ml, 30ml, (8, 15, 20, 40 Milk with Jasmine and (100g, special75ml, (8hr, 10hr, and 100 Coconut Milk with 200g125ml,250ml) 12hr) sticks.) Kasturi Manjal, and is 380g) presented in 75gm packs. ) Exo dishUjala washing wash Max vaporizerpowder liquid Marketing of godrej Tea (30ml, 45ml)(25g, 500g, 1Kg) (500ml, 125ml)Stiff & shine Max aerosol Marketing of(20gm sachets, Ekta dhoop100ml and (150ml,300ml)200ml bottles)Product mix width: The total number of product line that company offers to the consumers.For example, Jyothy laboratories product mix has six lines. Hence width is 6Product mix length: The total number of items that company carries within its product line.For example, Jyothy laboratories fabric care division has three itemsEDUPROZ Page 106
  • 107. MarketingProduct line depth: The number of versions offered of each product in the line.For example, Jyothy laboratories’ Jeeva Natural is offered in three versions i.e. Coconut Milkwith Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and ispresented in 75gm packs.Product mix consistency: If company’s product lines usage, production and marketing are relatedthen product mix is consistent else it is unrelated.Incase of Jyothy laboratories, all six product lines are FMCGs. Hence it is having consistentproduct mix. But ITC Company’s cigarette and cloth product line are totally unrelated.Learning Objective 3: Explain the role of packaging and labeling.Packaging and labeling.Packaging: The process of designing and producing the container or wrapper for a product.Packaging plays vital role in marketing a product. Some rural consumers identify and buy theproduct on the design or cover of the product. Packaging has other benefits to the consumersalso. They are1. It gives proper protection to the product.2. It helps in bulk breaking.3. Entices the customer to buy the product.Companies those not give much importance faces severe problems in the market.Table 8.5EDUPROZ Page 107
  • 108. MarketingWorm turns for Cadbury ( Bhatnagar28 November 2003Hyderabad: The worms in the chocolate bars controversy has hit Cadbury India where it hurtsmost and that is in sales. The company today faces tough times ahead as the businessenvironment for its chocolates becomes increasingly negative with rising raw material prices andlow consumer sentiments, post the worms controversy in October this year. While the sales ofchocolates (institutional and retail) fell by 3 to 4 per cent last month and are predicted to be downby 10 per cent in November by the trade, Cadbury India has had to incur additional costs inupgrading packaging and damage control promotional efforts. To add to all this, prices of milkand cocoa have been on the upward path in recent months, adding further to the costs. Thelargest impact on sales has been in Maharashtra, and specifically in Mumbai, which is where thewhole controversy arose as worms were found in Cadbury chocolates in allegedly eight outletsacross the state. If it weren’t bad enough that the controversy blew up at the festival season whenthe chocolates sales are at their peak, the company may also just have to shelve plans ofbecoming a major sourcing hub for British chocolates and beverages giant Cadbury Schweppes.As part of a global realignment of its supply chain management, the company was givingfinishing touches to a plan that might have seen Cadbury India emerge as a major supplier ofchocolates to the Asia-Pacific region and the Middle East. The outsourcing model could haveresulted in significant revenue generation for Cadbury India. Initially the company blamedretailers for not storing the products properly but is now engaged in putting in place a regularmonitoring and checking system of the storage of the chocolates.Cadbury India managing director Bharat Puri says the company has made substantialinvestments in packaging in order to maintain product quality from the manufacturer to thecustomer. And now it is making all attempts to reassure the consumer and win back theirconfidence and interest in the category. It has initiated Project Vishwas, a three-step programmeinvolving wholesalers and retailers in which the company partners with the traders on a war-footing to build awareness about storage requirements for Cadbury products. In Maharashtrawhere the maximum damage has been done the company has involved a team of quality-controlmanagers along with 300 salespeople to carry out checks of over 50,000 retail outlets whichretail Cadbury products. The products in upgraded packaging are expected to hit retail storesearly next year. Analysts say in the past couple of years in the face of increasing competitionfrom Swiss chocolates major Nestle India and the home-grown Amul, Cadbury has been pushingits products aggressively and targeting the adult audience especially to expand the market.Packaging strategies:1. Adopting a same package for entire product line.2. Multiple packs for multiple products3. Changing the packages continuously.EDUPROZ Page 108
  • 109. MarketingLabeling:Labeling: it carries the information about the product and the seller.Types of label:a. Brand label: only brand name is mentioned on the packaging. For example, Dharawadmangoes pack, only brand name is highlighted.b. Grade label: Identifies the products judged quality with a letter, number or word. For example,fertilizers 19-19-0-19, 17-19-19-19 etc…c. A descriptive label: gives the entire information about the product, use, and care. For example,vasemol hair dye packet contains brochure in which it tells how to use product, what are theprecautions one should take etc…Learning Objective 5: Assess the stages involved in the new product development.New Product DevelopmentNew products are essential for existing firms to keep the momentum and for new firms theyprovide the differentiation. New product doesn’t mean that absolutely new to the world. It maybe modification, or offered in the new market, or differentiate from existing products. Thereforeit is necessary to understand what are new products?New Products area. They are really innovative: Google’s Orkut a networking site which revolutionized socialnetworking. In this site people can meet like minded people; they can form their own groups andmany more.b. They are very different from the others: Haier launches path-breaking 4-Door RefrigeratorsFirst time in Indiac. They are imitative; these products are not new to the market but new to the company. Forexample, cavin Kare launched ruche pickles. This product is new to cavin kare but not to themarket.New product development process:Stage 1: Idea generation: new product idea can be generated either from the internal sources orexternal sources. The internal sources include employees of the organization and data collectedfrom the market. The external source includes customers, competitors and supply chainmembers. For example, Ingersoll rand welcomes new ideas from the General publicEDUPROZ Page 109
  • 110. MarketingStage 2: Idea screening: Organization may have various ideas but it should find out which ofthese ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata,chairman TATA group discussed how his idea saw many changes from the basic version. He toldthat he wanted to develop car with scooter engine, plastic doors etc… But when he unveiled thecar so many change were there in the product. This shows that initial idea will be changed on thebasis of market requirements.Stage 3: concept development:Concepts used for Tata Nano car areConcept 1: low-end ‘rural car,’ probably without doors or windows and with plastic curtains thatrolled down, a four-wheel version of the auto-rickshawConcept 2: a car made by engineering plastics and new materials, and using new technology likeaerospace adhesives instead of welding.Concept 3: Indigenous, in-house car which meets all the environment standardsStage 4; concept testing: at this stage concept was tested with the group of target customers.Stage 5: Marketing strategy development: The marketing strategy development involves threeparts. The first part focuses on target market, sales, market share and profit goals. TATA’s initialbusiness plan consisted sales of 2 Lakh cars per annum. The second part involves product price,distribution and marketing budget strategies. TATA’s fixed Rs 1 Lakh as the car price, andfinding self employed person who works like agent to distribute the cars. The final part containsmarketing mix strategy and profit goals.Stage 6: business analysis: it is the analysis of sales, costs and profit estimated for a new productto find out whether these align with company mission and objectives.Stage 7: Product development:EDUPROZ Page 110
  • 111. MarketingTATA nano car development (source; business world nanolution)1. Tried to outsource the product from allover the world.2. Development of ‘mule’ or prototype with 20bhp.3. Designing the small engine4. Thermodynamic simulations and final engine5. Development of MPFI with help of Bosch.6. Cost reduction and negotiating with vendors.7. Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cuttingweight. Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres tobear extra weight on rear wheels.Stage 8: test marketing:1. The product is introduced into the realistic market2. The 4P’s of marketing are tested.3. The cost of test marketing varies with the type of product.Stage 9: commercialization: In this stage product is completely placed in the market andaggressive communication program is carried out to support it.Learning Objective 6: Describe the product life cycle.EDUPROZ Page 111
  • 112. MarketingThe product which is introduced into the market will undergo some modifications over theperiod. Its sales also fluctuate. Therefore marketer is interested in finding out How sales changesover period? And what strategies best suits at that point? A product life cycle can be graphed byplotting aggregate sales volume for a product category over time. Generally the curve resemblesbell shaped curve but it is not the only one type of curve. We can obtain style, fashion or fadstyle of product life cycles also.EDUPROZ Page 112
  • 113. MarketingProduct life cycle (bell shaped curve)According to this type of cycle a product passes through five stages:1. Product development stage: In this stage company identifies the viable idea and develops it.Sales in this stage are zero but require huge research and development budget. Thereforecompany incurs losses at this stage.2. Introduction stage: Company introduces the product into the market. As the product is new tothe market, awareness is usually very low. Here company adopts heavy sales promotion andproduct awareness programs. The cost of product is very high and a sale is very low. At thisjuncture company charges high price to the customer.3. Growth stage: Company gets experience over the period and now tries to get the maximummarket share (take first mover advantage). Sales will grow rapidly resulting in lesser cost andbetter profit. Company reduces the price of the product and offers varieties and values in it. Itfocuses on building better distribution network and pushes the product through it. Thereforecompany needs less sales promotion. Number of competitors will grow and it forces company tokeep tab on them.4. Maturity stage:a. Peak sales.b. Low cost per customer.c. High profits.d. Competition based pricinge. Communicating the product differentiation to consumer.f. Improving supply chain efficiency.g. Defend the market shareh. Industry experiences the consolidation.5. Decline stage: In this stage, product sales and profit declines. Company should phase out weakitems from their product mix. The advertisement budget of the company also comes down.Other product life cycles:1. Style: a style is a basic and distinctive mode of expression appears in the field of humanbehavior. For example, style appears in homes, art, and clothing. Once the style is invented itwill lost for longer period.EDUPROZ Page 113
  • 114. Marketing2. Fashion: currently accepted or popular style in a given field for example, cargo jeans are nowfashion with college going students.3. Fad: a fashion that enters quickly, adopted with great zeal, peaks early, and decline very fastfor example, when the pager is introduced, every body would like to have the product. But whenpeople found mobile as alternatives the demand for the product went down drastically.Summary1. Product: A good, service, person, place, events or organizations that are offered to consumersto satisfy his need or want.2. A product is having five levels i.e. Core product, generic product, expected product,augmented product, and potential product.3. A product can be classified as consumer products and industrial products.4. Product line length: The number of items in the product line is called the product line length.5. Product mix width: The total number of product line that company offers to the consumers.6. New products may be really innovative, different form others or imitative one.7. In the growth stage sales and profit of the company increasesUnit 9 Product Management: Services and Branding StrategyIntroductionServices are deeds or performances. The importance of services in India is growing every year.The rise of Information technology (IT) and Information technology enabled services (ITES) isenhancing the contribution of services to the Indian economy. According to the National councilof applied economic research (NCAER) services contributes 55% to the total GDP.Table 9.1. Share of services in GDPYear Share of services in GDP (%)2001-02 502002-03 522003-04 522004-05 532005-06 542006-07 55EDUPROZ Page 114
  • 115. Marketing(Source: Central Statistical organization)Services may be used for intermediate consumption or final consumption. Transportation is anexample of intermediate consumption whereas beauty saloons are part of final consumption. Theincrease in the purchasing power and professional retail services fuelled the growth of services inIndia. Deregulated telecom industry and integrated supply chain companies contribute themajority of the service share in the GDP. Thus, we will discuss the importance of service sectorto the Indian economy.Branding is another important area in the product management. It helps in providing the identityto the product and build loyal customers. Organizations use their existing brand names to newproduct or services. These phenomena show that brands are assets of the company. Brandmanager should take various brand decisions like name, positioning, extension, image and so on.Companies all over the world spend huge amount on acquiring brands.Learning Objective 1: Understand the constituents of brand equity.BrandAmerican marketing association defines the brand as‘A name, term, design, symbol, or any other feature that identifies one seller’s good or service asdistinct from those of other sellers’.The legal term for brand is trademark. A brand may identify one item, a family of items, or allitems of that seller. If used for the firm as a whole, the preferred term is trade nameExplanation of the definition:Brand is a name: TVS, Infosys, Santoor, Chandrika, and Mysore Sandal.Brand is a term: victor means the person who won. TVS Company can protect this name fromcopying by any other automobile company.Brand is a design: the exteriors of retail outlet which helps the customer to identify it veryquickly.Brand is a symbol: Mercedes is recognized by its symbol.Advantages and disadvantages of brandingAdvantages1. Helps in identifying the goods and services.2. It stimulates the purchase decision of the consumer.EDUPROZ Page 115
  • 116. Marketing3. It helps in creating a customer loyalty.4. It helps the company to maintain the leadership position in the market( if they are alreadymarket leader)Disadvantages1. Requires huge investment.2. An unsuccessful brand will bring negative image to the company.3. Customer may not be willing to pay extra just because it is branded.Brand equityBrand equity is set of assets linked to a brand’s name and symbol that adds to the value providedby the product or a service to a firm and/or that firm’s customer.Components of brand equity:1. Brand loyalty2. Brand awareness3. Perceived quality4. Brand associationsBrand loyalty is consumer’s commitment to repurchase the brand and can be demonstrated byrepeated buying of a product or service or other positive behaviors such as word of mouthadvocacy. True brand loyalty implies that the consumer is willing, at least on occasion, to putaside their own desires in the interest of the brand. This will help organization to reduce thepromotion cost. For example, many girls in India use only Ponds products though competitors’products like Fa, Spinz, cuticura, and Mysore sandal present in the market and vice versa.Brand awareness:The number of customers exposed to the brand name. Higher the brand awareness, higher will bethe brand equity. Organizations put all the effort in the introduction stage of the product to createawareness among the customers.Perceived quality: the customer perception about the actual quality level of the product.Brand associations: The attribute of the brand that customer associates with his/ her belief. Aperson may associate the brand for power, strength or protectiveness.Learning Objective 3: Analyze the brand positioning methods.EDUPROZ Page 116
  • 117. MarketingBrand positioningAs we discussed in the segmentation, targeting and positioning unit, the image of the productshould be created in the minds of consumer. Brand managers use three levels of positioningstrategies to get the mind share of the customer.Table 9.2Level Character Illustration. Ingredients: the product speaks about the innovative ingredients thatProduct company offers in the product. In theattributes gore example the company explains the four way water pressure technology in the advertisement Figure 9.1 Taste: Kiss an sauce explains how their product is different from others and how the target customer likes it Figure 9.2Benefit Safety ICICI Lombard Caring ITC Ashrivad Adventure Mountain dew: Do the dew On time delivery Dominos: 30 minutes nahi to free. Performance Sharp guarantee offerBeliefs Peaceful Bharti AXAand values Happy Nestle KitkatEDUPROZ Page 117
  • 118. MarketingLearning Objective 5: Evaluate the brand name selection and brand sponsorship strategies.Brand Name selectionBrand provides the image to the product. Brand manager should be careful while selectingproper name for the brand. There are six suggestions from the Philip Kotler to create a successfulbrand name. They are 1. It should suggest something about the product benefits and qualities; Frooti or appy Fizz 2. It should be easy to pronounce, recognize, and remember: Amul, Kissan, Ruchi 3. The brand name should be distinctive: cello, VIP 4. It should be extendable: Aashirwad, Wills 5. The name should be easily translated into foreign language: Mr. White. 6. It should be capable of registration and legal protectionBrand sponsorshipBrand manager have four options of sponsoring the brand. They are 1. Manufacturer brand 2. Private brand 3. Licensing 4. Co- brandingØ Manufacturer brand: The brand owned by manufacturer and promoted either directly orindirectly. This type of strategy is followed from years. Pillsbury atta is the manufacturer brand.In the below image you can see the Pillsbury is launching the Punjabi atta in the market. ( figure9.4)EDUPROZ Page 118
  • 119. MarketingØ Private Brand:Figure 9.3 Figure 9.4Private brands are also called as store brands. These brands bearing the store name or storeselected vendor name. Basic ingredients of private labels are1. It must be a unit package: It is difficult to assign a Private Label character to, say rice soldloose from a 100 kg bag. Even though it may enhance consumer loyalty for whateverreason, it does not qualify as a Private Label product.2. Relabeling: The unit pack must bear only the brand name of the particular store or any otherparty the store may choose for its Private Label programme.Private labels will enhance the category profitability; increase the negotiation power of theretailer and better value creates better consumer loyalty. All retailers cannot go for the privatelabeling. Private labels can be introduced if and only if 1. The consumer is not getting the tangible value. 2. The retailer is not making the enough returns from the sale of the branded goods.Emerging issues in private labeling: 1. The private label strategy is effective, profitable and reality. 2. The retailer must understand the price, quality and willingness to pay.EDUPROZ Page 119
  • 120. Marketing 3. The retailer must have a sufficiently large base of loyal customers in the store before introducing the private label. 4. The focus must be on consumer need and not any private agenda of the retailers 5. There must be stringent system for the private label production. Quality control is a must since there is no else to blame. 6. Private label must work to fill- in gaps in the category and not target the brand leader 7. Smart manufacturers may take a private label initiative of the retailer seriously and avoid value gaps in the categories as an impediment to growing private labels.(Source: Praxis- Business line)Ø Brand licensing: It is the legal authorization by the trade marked brand owner to allowanother company to use its brand for a fee. For example, Hugo boss, Tommy Hilfiger, Lovable,Lacoste, and Nike are some of the textile brands those licensed their brands in the Indian market.The major benefits of brand licensing are low cost, free publicity and revenue from royalty fees.Brand licensing also suffers from serious limitations like lack of manufacturing control, andlicensing arrangements may fail.Ø Co- Branding: According to Kotler co- branding is ‘the practice of using the establishedbrand names of two different companies on the same product’. For example, ICICI and HPCLcame together to sell ICICI-HPCL petro cards to the customer. Here card is the co- brandingbetween the two companies. Co- branding helps ICICI to utilize their financial resources well. Itadds another banking facility to the bank while HPCL can lock the customer from buying thepetroleum products from competitors. HPCL also gets the benefit of financial power which itdoesn’t have. Both companies promote these products. Hence they can leverage brand image andcan reduce the cost. All companies will not get benefit from co-branding. Some times companymay loose the brand image if the product fails.Learning Objective 6: Analyze the techniques of brand developmentBrand DevelopmentCompany can develop the brand on the basis of product category and brand name. Now we willdiscuss the different strategies adopted by companies to develop the brands.Product categoryBrand Name Existing NewExisting Line extension Brand extensionNewMulti brands New brandsFigure 9.5 1. Line extension: Company uses its well known brand name to introduce additional items in a given product category such as new forms, flavors, ingredients or package sizes.EDUPROZ Page 120
  • 121. MarketingFor example, Karnataka Milk federation, Uses its top brand name Nandini to introduce newitems like toned milk, full cream milk , curd and milk powder.Figure 9.6It is less risky and requires fewer investments to introduce the product. In the above examplenandini used the extension to meet the excess capacity that it has. The milk procurement wasmore than the demand from the customer. Hence it started producing the milk powder. But allthe products introduced need not to be successful in the market. In case of KMF nandini Icecreams didn’t click in the market. Another risk of line extension is brand cannibalization’s brand/items compete each other.2. Brand extension: A strategy in which company uses one of its familiar brand names to newproduct category’s items. For example, United breweries (UB) limited group used its flagshipbrand kingfisher to different categories. Kingfisher was originally a beer brand extended toairlines. Figure 9.7Brand extension gives instant recognition to the brand. In the above example people requiredvery less time to know kingfisher airline brand because parent brand was very well known.Brand extension if it fails then it may hurt the parent brand reputation in the market. 1. Multi brands: The techniques of introducing the product or items in existing product category with a new brand name.EDUPROZ Page 121
  • 122. MarketingFigure 9.8For example, Hindustan Unilever uses different brand names for their home and personal carecategory. The above example shows us that HUL have breeze, Dove, Liril Lux, Lifebuoy andPears in the bath soap segment itself.It helps company to come out with new features in the product or product category.Organizations adopt this strategy to avoid brand cannibalization in the given category. The majordisadvantage of this strategy is none of the brands will enjoy major market share and result inlesser profitability. In case of Hindustan Unilever company had more than 100 brands and wasforced to reduce it to 30 power brands. Other brands were not adding enough profit for thecompany.4. New brands: The strategy of coming out with new brand for new category products. In thisstrategy, company believes that existing brands can not be extended to the new category. Thenew brand strategy requires huge resources to build it. The new category if it already had somebrands of other companies, investment requirement will go up. For example, Hindustan Unileverlaunched Pure it in the water purifier category. The category and brand is new to the companyLearning Objectives 6:Know the characteristics of services.Nature And Characteristics Of ServicesEDUPROZ Page 122
  • 123. MarketingIn the beginning of this unit we discussed the importance of services to the Indian economy.Services are becoming important part of companies. Manufacturing companies which are averseto the services earlier are now giving priority to them. Some manufacturing companies like IBMbecome more of Service Company today. In this context, we are discussing what makes servicesso important. This can be explained with characteristics of services.1. Intangibility means services cannot be seen tasted, felt, hears or smelled before they arebought. For example, a patient undergoing surgery in Jaydev hospitals will not know how thesurgery is or what is the smell of surgery is. Intangibility offers many challenges to themarketers. First customer can not evaluate the service he/she gets. Second, though customerpurchases the services but he/she will not posses any physical product for it. Third, it is verydifficult to communicate to the consumer and finally setting the price for services will becomedifficult because of this characteristics.2. Inseparability of production and consumption means services are produced and consumedsimultaneously. To explain, in hotel industry food is prepared and sold to customersimmediately. This character results in more customization of the services rather than massproduction. In case of manufacturing of goods customer involvement is less or will not be therebut in services like Haircut customer involvement is necessary. Word of mouth plays animportant role in communicating the services.3. Perishability means service cannot be stored for later sale or use. This character of serviceleads to imbalance in the supply and demand situation in the organization. Some time demand ismore for the services and some times demand is very less. For example, airline service providerwill have huge demand at the time of new year and may not be having enough demand in theother time. So capacity may be excess or inadequate.4. Heterogeneity or variability means quality of the service provided differs from person toperson, place to place, time to time. To explain, Tourism services provided by an organization inKarwar is different from Mumbai. This variability of the services creates difficulties inmaintaining the service quality and standardization.Learning Objective 7: Discuss the strategies used in service marketing management.Strategies For Service Organizations1 Service differentiationa. Service firms offer different strategies to be recognized in the competition. Air Deccan startedno frill airline services when all the companies were trying to put luxury in their airline services.b. Service firms differentiate their services in supply chain management practices. For example,Air Deccan started booking their tickets only on website and telephone. It didn’t used agentnetwork like other competitors.EDUPROZ Page 123
  • 124. Marketingc. Service firms differentiate on the basis of image too. To explain, Merrill lynch’s bull, andING’s lion are two symbols differentiated them from the others.2 Service quality: Managing the quality is very difficult because of service characteristics. Feworganizations try to standardize their services to improve the service quality. They worked onfollowing dimensions to ensure better service qualitya. Reliabilityb. Responsivenessc. Assuranced. Empathy ande. Tangibility3 Service productivity: the service productivity can be increased in the following waysa. Train the existing employees.b. Recruit new employees who work better.c. Increase the quantity of their services.d. Provide physical evidence to the services.Summary1. A brand is a name, term, design, symbol, or any other feature that identifies one seller’s goodor service as distinct from those of other sellers’.2. Components of brand equity are brand loyalty, brand awareness, brand association andperceived quality3. Brand licensing: It is the legal authorization by the trade marked brand owner to allow anothercompany to use its brand for a fee.4. Companies use line extension, brand extension, multi brands and new brand strategies todevelop the brand5. Characteristics of services are intangibility, perishability, heterogeneity and inseparability ofproduction and consumption.6. The dimensions of service quality are reliability, responsiveness, assurance, intangibility andempathy.EDUPROZ Page 124
  • 125. MarketingUnit 11 – Distribution ManagementIntroductionDistribution of goods or services from the factory to the consumer provides strategic advantageto the company in the highly competitive environment. Earlier people used to wait to get theproducts but now companies should make them available as and when customer demands. Thishas thrown up an opportunity as well as challenge to the organizations to provide right product ata right place in a right time. Companies are also emphasizing on how to reduce the cost in thesupply chain. To meet the cost reduction objectives, they are integrating their system withinformation technology, outsourcing the distribution functions and streamlining the supply chain.Use of technology and interest of corporate in the distribution management resulted in theevolution of professional retailing and wholesaling in India. These above factors madedistribution as one of the important part of the marketing planning.Learning Objective 1: Explain the nature and functions of marketing channels.Need of marketing channelsMarketing channels are set of independent organizations involved in the distribution of the goodsor services to the consumer from the factory at right time, and right place.For example, Haldiram a company which produces snacks, chats and sweets have twomanufacturing locations at Delhi and Nagpur. The products from Delhi will be sent to 25 C&Fagents. These C&F agents distribute the goods to 700 distributors, who in turn sell to 0.4 millionretail outlets. In the same way, goods reaches to 0.2 million retailers from Nagpur plant via 25C&F’s and 375 distributors. Consumer buys Haldiram snacks throughout India through these 0.6million retailers.Marketing channels include retailers, wholesalers, agents, brokers etc. Some companies do notuse these channels. They directly market their products to consumer. For example, Dellcomputers ask its customers to login to the website, configure their product, and order the sameon the internet. Then generally a question comes to the mind, why many companies usemarketing channels and some do not. To answer the question we need to understand what are thefunctions marketing channels do and how they are advantageous than direct marketing.Functions of marketing channels1. Physical distribution: transporting and storing goods.2. Communication: Marketing intermediaries promotes the company’s products. Here channelmember provide the information regarding the product and pushes it to customer.3. Information: retailers and wholesalers collect the information from the customer and providethe same to the company.EDUPROZ Page 125
  • 126. Marketing4. Title transforming: Marketing intermediaries purchases the goods from the company andtransform the title of goods to next intermediary or customer.5. Relationship management: Here marketing intermediaries try to understand the needs ofconsumer, try to match his needs and satisfy them.Learning Objective 2:Analyze the decisions involved in the distribution management.Decisions involved in setting up a channelMarketer should consider various factors before deciding the particular type of channel. It maybe company or competitive factors. The type of goods to be transported and stored will decidethe length and intensity of channel. To decide on the particular channel, marketer will takefollowing decisions.1. Understanding the customer profile: Purchasing habits differs from individual to individual.Individuals who face shortage of time would like to purchase on the net (direct channel) and whohave abundance of time would like to experience the shopping. Some of them would like to havevariety of goods while others want unique or specialized products. Hence marketer shouldunderstand who are his customers? How do they purchase? For example, customer don’t like totravel half a kilometer to purchase a shampoo sachet but he don’t mind travelling two kilo meterswhile purchasing durable goods.2. Determine the objectives on which channel to be developed.a. Reach: Company would like to make the goods available in most of the retail outlets. It willadopt intensive distribution channel.b. Profitability: Company wants to reduce the cost in the channels and enhance their profitability.It will restructure the channel to optimum level so that it can reduce the cost and increase theprofit.c. Differentiation: Company positions their products differently. When most of the industryplayers follow conventional system, company goes with new format of channels. For example,all computer manufacturers were adopting dealer retailer channel to sell their products but Dellstarted selling its product on the internet.3. Identify type of channel members: Once the objectives are set on the basis of company’spolicies, it will analyze which type of the channel best suits. Merchants, agents and resellers aresome intermediaries involved in the distribution. Merchants are those who buy the product, taketitle and resell the merchandise. Agents will find the customers, negotiate with them but do nottake the title of the product. Facilitators are the people who aid the distribution but do notnegotiate or take the title of the product.EDUPROZ Page 126
  • 127. Marketing4. Determining intensity of distribution: Intensity of distribution means how many middlemenwill be used at the wholesale and retail levels in a particular territory. If the numbers ofintermediaries are excess then the cost of the channel will increase vice versa if the number ofintermediaries are less then company will not be able to meet all target customers. Thereforecompany should adopt optimum number of intermediaries. On the basis of how manyintermediaries required, company can adopt any one of the following strategies.a. Intensive distribution: A strategy in which company stocks goods in more number of outlets.The intention is to make the goods available near to the customer. For example, you can findParle-G glucose biscuits available in almost all the retail outlets in rural and urban areas.b. Selective distribution: A strategy in which company stocks goods in limited number of retailoutlets. For example, televisions are sold only in selected retail outlets. TVs cannot be sold liketoothpaste. Onida TVs are available in electronic retail shops like Viveks, Girias, Next, E-zoneetc…c. Exclusive distribution: In this type of channel format marketer gives only a limited number ofdealers the excusive right to distribute its products in their territories. For example, a Kaya skincare solution of Marico was marketed through exclusive distribution.5. Assigning the responsibilities to channel members. Company should define the territory inwhich channel member should operate, at what price he should sell, services he should perform,and how he should sell.6. Selecting the criteria to evaluate the channel member: company may have different types ofchannel alternatives. It would like to choose any one of the alternatives, which meets itsobjectives. Channels can be evaluated in the design phase by the method called SCPCA.a. Sales(S): The ability of each channel member to generate the sales for company in a givenperiod.b. Cost(C): how much cost each channel alternatives incur? Which one of the alternativeprovides the optimum solution?c. Profitability (P): various channel alternatives available to the company and their profitabilityshall be compared. Company with better profitability shall be selected.d. Control (C): Every company would like to have better control over its channel members.Alternative channels can be evaluated on the basis of how much control each channel memberdesires? And how much control the company is willing to provide?e. Adaptability (A): Marketing is dynamic world. Competition exerts pressure on companies torelook at their practices and supply chain continuously. The channel alternatives should beflexible enough to meet the changing requirements. Whichever channel alternative meets suchobjectives shall be selected.EDUPROZ Page 127
  • 128. MarketingLearning Objective 3: Evaluate the different distribution strategies adopted by the company.Channel management strategiesIn the previous section we discussed channel alternatives and identification of proper channel forthe organization. The proper channel which is selected should be managed properly, motivatedand evaluated against set standards. Now we shall discuss what are the strategies companies arefollowing to meet their objectives.Managing and motivating channel memberNow day’s companies are considering their channel members as partners. These companies areasking its intermediaries to integrate their business with them. Integrated business reduce thecost, increase the efficiency, and helps in better customer service. Companies are adoptingpartner relationship management (PRM) software to add value to their supply chain.Partner relationship management @ AIRTEL Partner Relationship ManagementBharti Airtel’s requirements with respect to Partner Relationship Management. Bharti Airtelpartner engagement strategies focus on selecting the most capable partners worldwide andcontinuously working with them to enhance their capabilities of providing conforming goods orservices, on time. The fundamental criterion for selecting and developing a long-termrelationship with our partners is Best Value. Best Value applies not only to product cost, but alsoto costs and risks of acquisition and materials handling. Best Value, therefore includes thepartner’s service level, contribution to initiatives, and conformance to quality on all therequirements outlined in this manual.Bharti Airtel’s PRM Process comprises of the following steps • Categorization • Rewards & recognition • Satisfaction level • Communication • Grievances • Categorization Partner categorization is done on the following parameters o Business Size o Business Impact o Business Model o Type of product/item/service o Type of Technology & Domain knowledge o Performance statusEDUPROZ Page 128
  • 129. Marketing Partner Categories are o Privileged Partners – Registered, Approved, have contracts, currently supplying and Delight us on every aspect of business engagement. o Preferred Partners – Registered, Approved, Have contracts, supplying with satisfactory performance o Present Partners – Registered, Approved, Have contracts and currently supplying o Potential Partners - Registered & Approved but no contract with them Partner categorization is decided by the panel of experts from costing and pricing vertical of SCM function. Based on the category type, following privileges are given to partners Privileged Preferred Present Potential Parameters Partners Partners Partners Partner Strategic Strategic Partnership can — — — Partner done Airtel Office space, Facilities for — — — Canteen, Parking Partners Risk Risk Sharing — — — Max. 5% of the buying within a requirement Advances fiscal and recovery — — justification in 12 equal installments Engagement High Medium Need Based — Meetings Considered Considered New Business Preferred Preferred over over non opportunities potential registered • Rewards and Recognition Consistent performance is the basis for rewarding and recognizing Partners. The reward and recognition a criterion is partner performance score card. The performance is analyzed for different partner categories. • Parameters The list of parameters and their weightages areEDUPROZ Page 129
  • 130. Marketing SN Ranking Parameters Weightages 1 Cost 25 2 Quality 15 3 Delivery 15 4 Development / Innovation / New Technology 10 5 After Sales service / SLA 15 6 Responsiveness / Flexibility 10 7 BACKWARD Compatibility / Scalability 5 8 Systems and Processes 5 • Differentiators Key differentiators for the parameters are SN Parameter Key Differentiators Beating Inflation Alternate Sourcing 1 Cost Value Engineering Continuous Cost Reduction Y-on-Y Minimum Failure on Receipt No infant Failure First time Acceptance Quality Certification 2 Quality Consistent Quality in long run Quality Culture initiatives Minimum Outage Eco Friendliness On Time, as required Consistency 3 Delivery Handling Challenges Delivery in Exigency Value Engineering Development / Innovation / New 4 Time to Market Technology Competitive advantageEDUPROZ Page 130
  • 131. Marketing Value for Money / Value Added Focus on R & D Additional Revenue Stream Go to Market No Outage Spares Availability Meeting TAT Preventive Maintenance 5 After Sales service / SLA Response Time Resolution within SLA Detect-ability of the defects – online monitoring 24 X 7 Support Meeting Challenges Speed of Response 6 Responsiveness / Flexibility Willingness to raise the bar Understanding Customer needs Product Life Cycle – integration with Technology BACKWARD Compatibility / Timely Investments 7 Scalability Breadth & Depth Alignment with Airtel ’s Strategy Proactive Regulatory Compliance Innovative Business Models 8 Systems and Processes implementation Improvement Focus Partners are selected based on the following criteria o Covers all major categories o Major share of business in the category The scoring of each partner is carried by an evaluation team consisting of key users. Scores are compiled and ranking is carried out. • Award Categories The award categories are dynamic and primarily depend on Airtel’s Key thrust areas for the fiscal.EDUPROZ Page 131
  • 132. Marketing oProduct oServices oSpecial • Award Announcement Awards are announced and presented during the annual partnership meets. Consistent & good performers are recognized whereas bad performances are warned and punitive actions taken, as required, from time to time. • Partner Satisfaction Partner Satisfaction is considered as important tool by Bharti Airtel to improve and further develop its internal processes and external processes with partners in the supply chain network. Partner Satisfaction is considered o As an element of supply chain management including partnership, supply management and collaboration, quality management and reverse marketing o As an analogical element with customer satisfaction including marketing research o As analogical approach with 360° methodology. In order to obtain an unbiased feedback, the survey is conducted by an independent external agency. Survey parameters are jointly decided by partner approval team and the agency. These surveys are conducted once a year for selected Partners. The confidentiality of the survey data is maintained by the agency and is not disclosed to Bharti Airtel. The outcome of the survey would include o Area of improvements o Internal Benchmarks o Competition Benchmarking o Best Practices The results and feedback received from the partner satisfaction survey would be used to improve partner engagement processes at all levels of the organization. Partner touch- points would also be given feedbacks on their interaction & support effectiveness. • Partner Grievances Bharti Airtel recognizes Partners as one of the key stakeholders of its business and hence it is important to address their grievances in transparent and structured manner. Issues related to ethics and integrity is handled by Ombudsman Process as per the Bharti Airtel Code of Conduct policy. All other grievances are monitored, reviewed and resolved by Supply Chain Council.EDUPROZ Page 132
  • 133. Marketing This council comprises of senior members of the supply chain function. Partner identity is kept confidential in case of sensitive grievances like integrity issues. • Types of grievances Grievances are broadly classified in the following categories o Payments o Dispute/Disagreement in business o Unethical/Integrity/Code of Conduct violations There are different channels through which Partners can register their grievances o Partner Portal (to be activated soon) o E-mails to helpdesk Overview of Partner grievances handling process is given below Partner Grievance Handling StagesPartner registers grievance through available channelsReceive the grievance and forward to respective teams.Analysis on the grievance and come out with action plan. Implementation of the action plan.Partners are communicated with action taken • Partner Communication This section outlines Bharti Airtel requirements with respect to Partner Communication. Bharti Airtel believes that Communication is the nerve line for any partnership and focuses on establishing a transparent, two-way and trusting relationship with all partners. Communication with partners is done at different levels o Functional Directors – Conceptualization of requirement, delivery timing and KPI’s o User Owner – Delivery as per specification, timeline and usage requirement o Supply Chain Team – Commercial and Contractual Agreements o Governance Team – Code of Conduct, Contractual Obligations and Ethical Issues Three types of communications are considered o StrategicEDUPROZ Page 133
  • 134. Marketing o Operational o Need BasedEvaluating Channel MembersThe channel members need to be evaluated on a regular basis to assess their performance. In caseof Airtel cellular service provider channel members are evaluated on the basis of SN Ranking Parameters Weightages 1 Cost 25 2 Quality 15 3 Delivery 15 4 Development / Innovation / New Technology 10 5 After Sales service / SLA 15 6 Responsiveness / Flexibility 10 7 BACKWARD Compatibility / Scalability 5 8 Systems and Processes 5EDUPROZ Page 134
  • 135. MarketingLearning Objective 4:Understand the importance of logistics management.Introduction to Logistics managementProviding the right product at a right place in a right time is a challenging task. Marketingmanagers are developing or outsourcing the better storage and transportation facilities to makegoods available to customer at a right time. Therefore in the modern marketing the study ofmovement of goods (Logistics management) becomes prominent.According to Philip Kotler logistics management is‘ The tasks involved in planning, implementing, and controlling the physical flow of materials,final goods and related information from points of origin to points of consumption to meetcustomer requirements at a profit’.The above definition clearly shows that logistics management involves the moving the productsand materials from suppliers to the factory (Inbound logistics), and moving the product from thefactory to resellers and to customers (Out bound logistics). This stream of study involving thesuppliers and reverse distribution (return the products to factory) in the logistics management isnow days considered as supply chain management.Supply chain management is the process of flow of goods, information and fund from supplier’ssupplier to consumer (supplier’s supplier- supplier- factory- intermediaries- consumers)effectively and efficiently.Supply chain management@ Airtel (adopted from )Bharti Airtel understands the importance of partners to remain competitive in a dynamic businessenvironment. As a step in that direction, the Supply Chain (SCM) function has been created witha mandate to develop partner relationships to maximize mutual opportunities for growth andprofitability. The SCM organization has a central core team of supply chain subject materexperts and execution teams operating under different business divisions across the country.Supply Chain Characteristics Bharti Airtel ApproachNumber & Structure Fewer; ClusteredProcurement personnel LimitedOutsourcing StrategicNature of Interactions Cooperative, positive-sumRelationship focus Mutually-beneficialRelationship focus PerformanceContract length Long-termEDUPROZ Page 135
  • 136. MarketingPricing practices Target costingPrice Changes DownwardQuality Designed-inDelivery Smaller Quantities (JIT)Inventory buffers Minimized, eliminatedCommunication Extensive; multi-levelCommunication Collaborative; two-wayRole in development SubstantialProduction flexibility HighTechnology sharing ExtensiveDedicated investments SubstantialMutual commitment HighGovernance Self-governingFuture Expectations ConsiderableMajor logistics functionsa. Warehousing: Goods produced at the factory may not be consumed simultaneously. Thereforecompanies need to store the goods. Companies able to use proper warehousing facilitiesenhanced their operation efficiency. Warehousing can also be used as hub where goods come tothe facility and cross docked. Now days many companies are assigning this work to specializedplayers in ware housing. Hence warehousing itself grew like separate industry. Below is anexample of how Barista a coffee chain company used the services of safe express (LogisticsCompany) to improve their competitiveness.Better Latte than everSafexpress is right on time with front, the mocha and crackers. Its just in Time managementensures minimal inventory for the Barista chain of coffee bars. Both parties are involved in awin-win situationBarista, one of the favored outlets for coffee and snacks in the Indian sub-continent, is a goodexample of transparency in supply chain management operations. In fact, it would be a good casestudy to highlight as to how a logistics service provider can make his operations transparent tothe consumer oriented company, in this case the Barista chain of coffee shops. For the newlyEDUPROZ Page 136
  • 137. Marketingestablished Barista outlets in Indian cities, warehousing the supplies at posh locations in the heartof the city is a costly proposition. Leading logistics company Safexpress has taken over as thirdparty logistics (3pl) partner to supply each Barista outlet in different Indian cities theiringredients for that just right coffee cup, Just-In-Time, (JIT). This will leave Barista absolutelyfree of any investment and recurring costs for logistics and warehouse management.Warehouse management is the latest area where companies are trying to cut the costs and dilutethe level of resources employed to that area. Outsourcing logistics is a trend that started with thelarge supermarket chain in the United States and Canada. For the supermarket in North America,logistics is a non-entity as far as the operations workflow chart goes. They just concentrate onthe maintenance of the shelf space. The JIT operations aided by weather forecasting are fullycarried out by third party logistics providers.Safexpress, with considerable expertise in Supply Chain Management looks after the distributionand inventory requirement of Barista outlets operating from its mother warehouse in Delhi. Thismother warehouse further supports three regional warehouses in Mumbai, Calcutta andBangalore. Barista currently operates 82 outlets across 11 cities in India. It is serving around15,000 people every day, and by the look of things, this is just the beginning of a bigger wave.With a new outlet opening every 10 days, Barista expects to have 175 coffee bars by 2003.In such a scenario, how does Barista manage its supply chain? This, of course, is not its corebusiness but is still critical to its success. The answer lies in their logistics and Supply ChainManagement Company, Safexpress. Safexpress, India’s largest express company, offerscomplete logistics management solutions to Barista and in a way contributes to giving the Baristacustomer a world class coffee experience at a much better price.A typical Barista outlet world is 1000 sq-ft store with seats around a table. Around 95 per cent ofthe space is occupied by around 60 seats and the rest of it is the administration utility cornerrequired for processing orders. The inventory space is zero per cent and a set amount of suppliesranging from paper cups to coffee beans are replenished on daily basis. The daily replenishmentensures minimum order quantities. The efficiency of supply chain, in such a case, becomes acritical issue and hence requires the best of logistics management.Safexpress with its hands fully into Supply Chain Management looks after the distribution andinventory requirement of Barista outlets operating from its mother warehouse in Delhi, Whichfurther supports three regional warehouses in Mumbai, Calcutta and Bangalore.The above four warehouses cater to the supplies for the outlets in the respective cities as well asthe whole of that region’s outlets. So Delhi’s mother warehouse is the biggest of the foursupplying the remaining three at Mumbai, Calcutta and Bangalore as well as all the four regions’demands. All three regional warehouses in Mumbai, Calcutta and Bangalore have one-weekstock for fast moving items and three-week stock for slow moving items.The Safexpress logistics strategy focuses on reducing product response time thereby ensuringthat the customer’s demand is met at the right time, right place and at the right cost. The key liesin understanding the customer demand pattern, tracking transit time reliability, capturing realEDUPROZ Page 137
  • 138. Marketingtime data and through continuous replenishment. Any supply chain strategy has to dovetail withthe business strategy. The two have to be in tandem and there had to be a perfect alignmentbetween them, which is exactly what Safexpress aims to do. So with Safexpress in charge ofBarista’s supply chain operations, the much-desired cup of coffee will never be late, will neverbe unavailable.How the supply chain in this new venture is going to be in a win-win situation is somethingworthwhile to contemplate given the rich experience that Safexpress has. Safexpress Barista tieup is an example for those who are trying to get familiar with the role of third party logistics orpopularly known as 3PL partner’s role in Supply Chain Management in the current businessenvironment.As globalization catches up, outsourcing is getting more and more popular as a business strategy.In the supply chain management 3PL is a proven practice worldwide and is gaining acceptancenow in India as well. Ideally, a 3PL partner should unburden a client off its logistics tensions. Atthe same time, a 3PL partner must prove credentials by way of ensuring cost rationalization as ameasurement of his performance.Safexpress as an expert 3PL solution provider is exactly trying to be the same role model thatpurists of Supply Chain Management philosophy talk of i.e., to really unburden Barista off it’slogistics tensions through expert logistics manpower, optimum utilization of resources, includingmanpower, space, infrastructure, etc.Barista stands to gain from Safexpress’ faster TAT for all performance indicators, handlingexpertise of consignment, products in general. Currently, Safexpress is having a nationwidenetwork of over 425 metropolitan cities and townships with state-of-the-art infrastructure,backed by cutting edge Information Technology, systems and warehousing space exceeding onemillion square feet. The company has more than 2,000 all weatherproof IICL V containerizedvehicles, covering 750 routes, through 20 hubs and super hubs. Being a frontline 3PL companyits domain knowledge of all aspects including statutory, Functional, operational, logistical andmanagerial will also go a long way in maintaining smooth operations. And no doubt it will boostcost effective partnership.Further, Safexpress has the capability to suggest business models packaging parameters,reduction of logistics costs, as a value addition to its customers. Domestically, Safexpress is thelargest 3PL-service provider with over 40 customers in the 3PL area. Meaning Safexpress cannot only carry expertise and experience in 3PL but also can bring in these experiences to best usein whichever of the crunch area client is requiring, as bulk of its expertise comes from Indiancontext.Safexpress is streamlining its warehouse management too by developing innovative software andweb tracking facilities. It has offered to create warehouse space for Barista to offer effectivewarehouse management system and complete MIS solutions. It will be offering its solutionsthrough in-house WMS software, which has been developed and customized on the Tally basedEDUPROZ Page 138
  • 139. Marketingplatform. The end result is a completely, web compatible solution for cargo and warehousemanagement. This shall be utilized wherever there is a gap of reports/analysis in the Baristasystem, if any.Safexpress is has also offered Barista a completely web based waybill tracking system for onlinedelivery tracking of consignments. Safexpress has adopted state of the art informationtechnology applications to leverage value added services. The company provides on-line realtime information through its unique track and trace system. Safexpress has also pioneered aperfect blend of ‘Radio Trunking’ technology along with V-SAT links and satellitecommunication for monitoring route vehicles and intra city runs through a Global PositioningSystem. Strategic Alliances with Supply Chain Management Software Organizations provides acutting edge for a holistic service. In the end that cup of coffee tastes doubly good. 1. Department store: In this retail format apparel, home furnishing and consumables goods and services are sold. Each of the formats is considered as a different department and managed in the retail store. For example, Shoppers stop of Raheja group.Supermarkets: According to Philip Kotler ‘ supermarkets are a relatively large, low cast, lowmargin, high volume, self service operation designed to serve the consumer’s total needs for foodand house hold products. For example, Food world of RPG group.b. Inventory management: Organizations need to store the goods required for day to dayoperation. They can not store high inventory as stock piles up and cost also increases. They arenot sure of demand fluctuation and its impact on the inventory, so they do not want take risk bycarrying little inventory. For example, safe express which provides inventory solution to Baristareplenishes the goods on daily basis so that barista can maintain zero inventory space in theiroutlets.c. Transportation: The goods need to be carried from one place to another. Transporters ship thegoods from supplier location to factory and from factory till customer. They use different modesto perform the function. The different modes arei. Air transportation.ii. Water transportation.iii. Surface transportation.EDUPROZ Page 139
  • 140. Marketingiv. Pipelines andv. Internet carriers.i. Air transportation: This mode of transportation is used to transport perishable goods. Thedominant characteristics of this mode are quick delivery, premium pricing and limited quantitytransportation.ii. Water transportation: this is the slowest but cost efficient mode of transportation. It can carrywide varieties of goods but it can reach only limited places. This mode is usually suited forbulky, low value non perishable goods.iii. Surface transportation: This mode is again divided as highway transportation and railtransportation. It can carry wide variety of assortments. In case of rail transportation it can carrybulky products while in highway transportation it is of high value goods.iv. Pipelines: this mode is excellent in meeting delivery schedules as it is having fewer obstacles.The drawback of this type of transportation mode is it carries very limited variety of productsand cover very limited geographic space. The cost of the transportation is very low. The mostsuitable products for this mode are oil, natural gas and slurried products.v. Internet carriers: This mode is used to carry digital products from producer to consumer viasatellite able modem or telephone wires. Software companies, education institutions etc are veryfew to name, who are using this mode of transport.Learning Objective 5:Discuss the growth and scope of retailing and wholesalingIntroduction to RetailingRetail sector has witnessed tremendous growth in the last few years. The major factors whichdrive the retail boom are change in consumer profile and demographics, increase in the numberof international brands available in the Indian market, economic implications of the government,increasing urbanization, credit availability, improvement in the infrastructure, increasinginvestments in technology and real estate . The Indian retail market, which is the fifth largestretail destination globally, according to industry estimates is estimated to grow from US$ 330billion in 2007 to US$ 427 billion by 2010 and US$ 637 billion by 2015. Simultaneously,organized retail which presently accounts for 4 per cent of the total market is likely to increaseits share to 22 per cent by 2010.As per Associated Chambers of Commerce and Industry of India (ASSOCHAM), the overallretail market is expected to grow by 36%. The organized sector is expected to register growthamounting to Rs 150 billion by 2008. Retail is amongst the fastest growing sectors in the countryand India ranks 1st, ahead of Russia, in terms of emerging markets potential in retail.Characteristics of retailingEDUPROZ Page 140
  • 141. Marketingi. Direct interaction with customers. Retailer is the final link between company and customer.Retailer understands the need of the customer and provides the proper solution to him. Forexample, neighborhood grocery store person knows his customer profile better. He reminds thecustomer of what to purchase and provides credit.ii. Purchased in small quantity: Customer purchases small quantity of merchandise at the retailstore. Though customer purchased at less quantity he purchases frequently. This has led to thebetter relationship between customer and retailer.iii. Tool of marketing communication: Companies use retailer location for point of purchasedisplays. They also encourages retailer to promote the products through word of mouthcommunication.Functions of retailing 1. Sorting: Retailers arrange the items in proper order so that customer can easily identify his goods or services. 2. Breaking bulk: the process of unpacking big packets into small packets. Retailer will perform this function as customer may not be able to purchase large quantity of goods and services. 3. Holding stock: Retailer works as storage facility to organizations. Retailer holds inventory to meet the day to day needs of consumer. 4. Channels of communication: Retailer promotes the company product through word of mouth communication. The retailer location is also used for point of purchase display. 5. Transportation: Retailer undertakes door delivery order in case of durable goods. This feature is now adopted by the small grocery stores also.Type of retailing 1. Store retailing: The mode of retailing where a store is essential in a particular location to do business. Store retailing can be performed in different formats. They are1) Specialty store: The stores carry large amount of merchandise but in a limited product lineslike Textile store or furniture store. For example, Tanishq a jewellary retail store. 1. 2. Convenience store: These stores are very near to customer residence. Usually carry day today products of high turnover at premium price. For example, Reliance freshEDUPROZ Page 141
  • 142. Marketing 3. Discount store: These stores sell products at low prices with low margin. The store achieves their profit by generating high volumes. Subhiksha, a south India based retailer follows this format. 1. Off price retailers: This type of retailer buys the goods less than wholesale prices. These products are sold less than retail prices. For example, factory outlets in marathahalli Bangalore. 4. Super stores: These are very large stores where customer can purchase food and non food products. The super store includes category killers that carry large merchandise in particular category. For example, Nalli sarees which carries large variety of sarees in their stores. Another type of super store format exists in India is Hypermarkets. These retail outlets have huge space and carry large merchandise. For example, Reliance Mart in Ahmedabad. 5. Non store retailing: The mode of retailing where a company uses electronic media or direct selling medium to sell their products. For example, direct selling, Telemarketing, Automatic vending, online retailing and direct marketing. These examples will be discussed in detail in the Unit 13.WholesalingAccording to Philip Kotler wholesaling is‘All activities involved in selling goods and services to those buying for resale or business use’Wholesale trading in India is changing in character. Since pre-Independence, it has beendominated by the traditional caste-specific trading community. However, today, foreigninvestors seem to be making a beeline for this traditional trade. Government approved Rs 256.79crore worth of investment in the last three months. The Foreign Investment Promotion Board(FIPB) had approved 100 FDI proposals, out of which 33 are proposals to undertake wholesaletrading in India by foreign companies. These are in a wide range of product categories — fromshoes to animal feed, from color TVs and electrical equipments to hardware for doors andwindows, to name a few. This is revolutionary change in the wholesale business because earlierforeign companies looking at wholesale trading in India were mainly interested in importingproducts to sell in the Indian market. But now these companies are coming in purely as tradingfirms and sourcing and selling domestically only. This may pose strong competition to the localtrading population. The single largest investor in wholesale trading to have got Governmentapproval is Cargill Holding BV of Holland, which is poised to invest Rs 238 crore for trading incommodities including food grains and animal feed, and other industrial commodities. Similarly,Sharp Corporation of Japan, which already has a manufacturing base in India, will now startEDUPROZ Page 142
  • 143. Marketingtrading in color TVs, VCRs and similar items from other manufacturers as well. The UK-basedRandox Laboratories, whose products were earlier imported by domestic importers, will now besetting up its own subsidiary with an investment of Rs 15.5 crore for importing its own productsand undertaking wholesale trading in them.Functions of wholesaler 1. Selling: wholesalers have well defined network of retailers. Hence, they can sell the company product in the large area. 2. Bulk breaking: wholesalers buy the product in large quantities and send in small quantities to retailers. 3. Warehousing: Wholesalers have huge space to store the goods. They help in reducing the inventory cost to the company. 4. Transportation: Some companies have agreements with wholesalers on transporting the goods to retailers. 5. Credit and risk taking: wholesalers provide credit to the retailers. By doing this they take the risk of finance as well as products. 6. Information: Wholesalers provide the information to company on retailers purchase, retail market characteristics.Types of wholesalersMerchant wholesalers. These are independently owned wholesalers who take the risk ofpossessing the titles. Often they are classified on the basis of product line. Full servicewholesalers perform all the above mentioned functions. Limited service wholesalers’ offercontrolled services to retailers and customers. For example cash and carry business of METROin Bangalore.Brokers and agents: These wholesalers do not take the title of goods and perform few functions.Brokers have knowledge of buyer and seller, and bring both to the negotiation. Agents representthe company or retailer or customer on a permanent basis.Summary • Marketing channel perform physical distribution, transportation, warehousing, financing and risk taking functions. • Channels are design on the basis of reach, profitability and differentiation objectives. • Companies decide the number of marketing intermediaries on intensity required. They may use intensive distribution, exclusive distribution or selective distribution. • SCPCA method is used to evaluate the channel design. • Three major logistics functions performed are warehousing, inventory management and transportation of goods. • Specialty stores carry large amount of merchandise but in a limited product lines like Textile or furniture product lines.EDUPROZ Page 143
  • 144. MarketingWholesaling is defined as ‘All activities involved in selling goods and services to those buyingfor resale or business useUnit 13 Personal Communication ChannelsIntroductionAdvertisement clutter and large product assortment are posing new challenges. One of the majorchallenges is how to reach consumer. The indirect media has an influence on consumer but itseffectiveness in generating the sales has diminished over the period. Organizations are lookingtowards interpersonal communications. As we discussed in the last chapter, companies areencouraging word of mouth communication and viral marketing. They are concentrating onenhancing the effectiveness and efficiency of their sale force. In this unit, we are discussing thepersonal selling, sales force management and direct marketing conceptsLearning Objective 1: Define the personal sellingPersonal sellingThe communication technique in which sales people builds the personal relationship withcustomers to generate the value for the organization.The value may be sales for the sales force and benefits to the customer. The value may not beonly financial gains, but it may be providing the information to customer. For example, Medicalrepresentatives of CIPLA provide the information to doctors and they don’t sell the medicine tothem.Nature of personal sellingPersonal selling has experienced the paradigm shift. There was time when sales jobs areperceived to be low. The emergence of modern corporations and rise of new India is in dire needof professional selling. Now days it is not mere selling. It is using professional skills to have along term relationship with the customers to generate the value continuously. This has resulted inthe growth of professional sales force. Even companies that believed in marketing throughchannels entered into the personal selling. For example, Hindustan Unilever Limited (HUL)which is having retail and wholesale channels, recently entered into the network marketing.There are various types of sales jobs used to sell the product of the organizations. They are1. Delivering: The job of sales executive is to reach the products to the customer destination. Forexample, A sales person working for transport or courier company reaches the goods to thecustomer places.2. Inside order taker: Sales executives in the retail stores like Subhiksha help the customer inidentifying the product. The person in the hotel takes the order and serves better.3. Outside order: these are field executives who go to the customer place and get the order.EDUPROZ Page 144
  • 145. Marketing4. Missionary selling: sales executives provide the information and promote the companyproducts- medical representatives.5. Sales engineer: In this position, the sales executive is technical expert and works withnontechnical sales executive to provide assistance on technical information sought by thecustomer.Approaches to Personal Selling1. Stimulus response selling: In this approach, sales person provides the stimulus and expects theresponse from the buyer. This process will continue till purchase decision has made.2. Need satisfaction selling: In this approach, sales executive identifies the need of the product inthe customer and confirms it. He provides the various offerings to the customer to choose andcontinue this process till the purchase has made.3. Problem solving selling: This approach is used when the customer faces the purchasingproblem. In this approach, sales executive defines the problem of the customer, generate thealternative solution and evaluate them. Then he works with particular solution till the customerpurchase.Situations That Favor Personal Selling1. The price of the product is high, technical in nature and needs demonstration.2. The product is in the introductory stage of the product life cycle.3. Organization does not have enough money to carry advertisement campaigns.4. Product can be customized and5. Market is concentrated.Advantages and Disadvantages of Personal SellingAdvantages • It can be customized • It can focus on prospective customers. • It results in the actual sale, while most other forms of promotion are used in moving the customer closer to the sale.Disadvantages • It is costly to develop and operate a sales force. • It is very difficult to attract upper class people.EDUPROZ Page 145
  • 146. MarketingLearning Objective 2: Analyze the sales management techniques.Sales managementDeciding the sales territory: Territory is defined as the geographical boundary set for salesexecutives to work. The objective of setting up territory is to avoid the conflict between twosales executives. This will help to set particular quota for sales executives and shall be used forperformance evaluation.Sales force size: The sales force size is decided by the work load method. Work load methodconsists ofa. Identification of customers and grouping them into different categories.b. List out the activities sales executive has to perform.c. find out the time available for selling and non selling activities of sales executives.d. Analyze the number of calls one has to do in a particular period.e. calculate the number of sales people required.Sales organization: sales activities in the organization are allotted on the basis of geography(Bangalore, Mysore etc), product (personal care, water purifier etc) customer (steel companies,electric companies etc) or matrix type. This helps company to have better control over the salesexecutives.HR practices in sales managementv Recruiting:Recruitment is a process of finding out candidates, who are encouraged to apply. Selection isprocess of choosing some out of many candidates. Therefore, we can say that selection isrecruitment, but recruitment is not selection. Selection is a process of rejection of unfits.Recruitment precedes the selection process.After deciding the number of salesman and the objectives, the sales manager must selectpersonnel. The usual sources of recruitment may be either internal or external.Internal Sources: Many firms feel that the best policy to fill the vacancies of salesmen is fromout of the existing employees of the same organization. It may also be termed as promotion. Thiscan well be adopted by analyzing the ability and promising character of the staff on the basis ofseniority i.e., length of services.Merits:EDUPROZ Page 146
  • 147. Marketing1. Much co-operation can be expected.2. They are loyal.3. Since it is a promotion, sincere and honest performance can be expected.4. They may not need training.5. They may not need high salary.Demerits:1. There is limited scope for selection.2. Favoritism plays its role.3. The person may not adjust himself to the new job as the nature of work is different.Apart from the internal selection, ex-employees of the company can also be appointed if they arewilling to accept a job. This policy is better and can profitably be adopted.External Sources: We have the following sources:1. Employment Exchange2. Competitors’ organization3. Salesman of non-competing firms4. Educational Institutions5. Recommended cases6. Advertisement7. Unsolicited applications etc.1)`Employment Exchange: Private and public employment exchanges are the best source ofpersonnel. They maintain proper registers with names and other full details of persons, such asjob referred by those who seek jobs. The sales manager can call persons from exchange, bygiving job specification to the officer concerned. In almost all cases the candidates may beuntrained; and inexperienced hands requiring further training.2) Competitors’ Organization: The salesmen employed in other competing firms can also bechosen. But this method is not morally accepted. He may be trained and may be developing hisfirm. Such a person can be drawn by temptation by giving more facilities and a higher salary.EDUPROZ Page 147
  • 148. MarketingBut it must be verified how far he is able to meet the sales objectives, considering his sincerity,loyalty, habits etc Such a man, when he gets some additional benefits from some other firms,will follow the same tactics i.e., leave the firm.3) Salesman of Non-competing Firms: Salesman can also be chosen from non-competingfirms. Such persons may have experience in the line, if not touch with the particular product.They may need training to come up to the level of aimed sales objectives.4) Educational Institutions: Advanced countries like America, England etc., select studentsdirectly from specialized institutions, where theoretical and practical knowledge is gained bythem. The Institutional Heads maintain complete records of students but as far as India isconcerned, the chances are rare. It has been neglected with the feeling, ‘just from egg’ i.e.,inexperienced.5) Recommended cases: The employees of the firm-managers, superintendents, section headsetc., may recommend candidates from their friend circles. They have a moral responsibility whensuch persons are recruited. The employee who recommends personnel will be blamed, if theperson is found unit.6) Advertisement: This is a system generally accepted by firms in recruiting salesmen.Advertisements are displayed in newspapers, trade journals specifying the job and the requiredqualifications, experience and skill. There is the possibility of a wider scope of selection, as thenews spreads over a wide geographical area. • Selecting: Selection procedure differs from firm to firm. Each firm has got its own method in choosing men for employment. The qualities that the recruiters seek in men to be appointed, depends on the job description. Similarly the selection method also depends upon the sales management. Generally, the following steps are followed:1. Application blank2. Screening3. Reference4. Personal interview5. Test6. Medical examination7. Final interview (appointment)a) Application Blank: Necessary information about the applicant is required to be consideredfor appointment. Generally, the candidates are asked to apply on company’s application form,sent directly to applicants against a requisition or an application is known as application blankEDUPROZ Page 148
  • 149. Marketinggiven in the advertisement itself. This is with a view to gather only the necessary details of theapplicants. It contains a number of questions, when filled in, gives a clear idea about thecandidate. Generally, it may contain the name, sex, qualification, age, experience, health, socialactivities, references etc.b) Screening: All applications will not be considered. Screening is a process by whichapplications are to be screened out (rejected) from further consideration, on the basis ofunsuitability. The remaining applications are formally considered for appointment, subject tofurther formalities. By rejecting the applications of unqualified applicants, much time and energycan be saved in further processing.c) Reference: Generally, it is a common practice to ask the applicant to mention the names oftwo references or referees, to whom the sales manager can make enquiries about the integrity,general character and ability of the applicant concerned. The qualities are checked with care andcaution by the sales manager, by contacting the referees. If the opinions are favorable, theapplications pass on to the next stage; and in case the referee gives unfavorable comment, theapplication is rejected at this stage.Personal contact is necessary and it is better, because people are straight forward in tongue betterthan in pen. This is one-sided, but the effectiveness of such opinion is doubted, as there may bechances of telling only the good qualities of applicants. Moreover, only the names of suchfavorable persons are mentioned in reference, with pre-intimation. To overcome this, personalinterview is essential.d) Personal Interview: This is an important step in the process of selection. Only the screenedapplications are considered for selection and the firm sends out interview letters. Personalinterview is a must. By this interview, the sales manager can understand the positive andnegative qualities of the applicant, with reference to the job duties. A good interviewer must beunbiased, able to discover facts and be a keen observer of the interviewee.Interviews are also of two types: (a) Patterned and non-patterned. Under patterned interview,questions are designed and the same questions are asked to all, which is easy for comparisonpurposes. (b) In non-patterned interview, no standardized questions are asked. The applicant isallowed to talk freely. A few direct questions are asked. By this type of interview, the applicantgets a chance of speaking about his attitude and interest freely. The interviewer must be able tomake an easy evaluation of the interview.e) Tests: Test is an additional tool, with which the applicants are further tested to determine theirsuitability to the job. Generally, following are the important types of psychological testsconducted:(i) Ability Test: This test is devised to ascertain the capacity to grasp things, and is a measure toknow how well a person performs a particular task with motivation. This can also be called amental ability or intelligence test. Such tests determine the suitability of a candidate for aparticular job.EDUPROZ Page 149
  • 150. Marketing(ii) Habitual Characteristic Test: A man may be intelligent but may hesitate to take a decision.This test is aimed to know one’s aptitude and interest on normal, daily work, irrespective of thebest behavior occasionally.(iii) Achievement Test: This test is designed to know what knowledge a man has gained fromhis education or training.By all these psychological tests, the ability and suitability of a candidate can be verified. One canaim to evaluate the honesty, cheerfulness, leadership quality, assertiveness, co-operation,supervision capacity, emotional stability, determination, ability etc., of the personnel. Theeffectiveness and reliability of these tests are questionable, as the qualities cannot be measuredexactly and the circumstances to be faced by salesman are also different.f) Medical Examination: The important thing about any person, apart from all qualities andeligibility, is that he must be physically fit for the job. Diseases and physical deficiencies of thesalesmen will affect the business. As such, selected applicants have to undergo medicalexamination.g) Final Interview and Appointment: The selected applicant is probably, called for a finalinterview and his suitability is measured through different tests, physical reports etc. The jobmust be explained to him along with all relevant details, which are required to perform the dutiesefficiently.If everything is in favor of the applicant, an agreement must be executed by him. Generally, theagreement contains duties and authorities, sales quota, sales territory allotted, salary andconditions of resigning. It is followed by an appointment order, which contains designation, jobsto be performed, salary and other financial benefits etc. • TrainingTraining is a continuation of selection. Having selected the salesmen, there are two options. Theycan be sent to the field directly with samples, order books etc., (born salesman) and/or they canbe sent for training programme. Some people think that salesmanship is born in man, but thereare only born salesmen, like born doctors, lawyer, engineers, teachers etc. However all thesepeople need training to call them qualified, and so also is the case with salesman. A man mayhave interest in the profession. The interest can be fully developed, through proper training. Oneattains perfection, self-development etc., through training.Training means it is the process of perfecting the salesmen for their work. Training programmeare organized procedure or methods through which knowledge as well as skill, for a definitepurpose, is acquired. By training, one can increase knowledge in a particular field. Thesalesmanship is not born but can be made effective through training.Significance of Training: The present era of marketing world is full of stiff and cut-throatcompetition. The world is dynamic and not static. Customers are more benefit-oriented.Producers, in order to meet the ever-changing demands of the consumers, produce new products,EDUPROZ Page 150
  • 151. Marketingnew devices, and products with multiple uses and so on. Thus, training or repeated training isessential to keep the salesmen, with up-to-date knowledge, in respect of new or developed goods.Training gives scope for improvement.Objectives of Training: The objectives are summed up below:1. To facilitate the salesmen to acquire the technique and principles of salesmanship, process ofsales, canvassing etc.2. To bring down the labor turnover in the sales force.3. To facilitate better sales performance.4. To improve the relations with the customers.5. To increase the efficiency of sales personnel.6. To keep the salesman informed of the knowledge of products, market, competitors etc., to faceall situations.7. To lower the selling expense so as to increase the profits.8. To maintain sound relation between employer and employee.9. To develop better knowledge, and the ways and means to resist all situations.10. To motivate the consumers more effectively.Advantages of Training to Salesman1) A trained salesman always wins customers by systematic approach.2) Salesman acquires better understanding of the firm, as to its past history, policies andprocedures and this helps the salesman for effective dealings.3) A trained salesman takes less time in concluding a sale-early selling maturity.4) A trained salesman brings increased volume of sales, in turn, more profit to the firm andhimself.5) A trained salesman is able to meet consumer’s demand and help in solving problems.6) Increased volume of sales facilitates reduction in cost of production i.e., sales rise faster thanexpected. The cost per unit of order or per prospect can be minimized.EDUPROZ Page 151
  • 152. Marketing7) A better relation is created among the customers through reducing customer’s complaint,increasing brand loyalty etc. Customer’s satisfaction is gained. The ability of the salesman is increased by expert knowledge.9) Controlling of salesman becomes easy.10) Training facilitates better demonstrations, selling the products which have high profitmargin, better methods of canvassing etc. Sales training helps to increase the sales volume.Supervision cost is reduced as trained salesman needs less supervision.Training Programme: A firm should chalk out a programme for sales training. The training isbased on the nature of the job and the products to be sold. A planned training programme shouldfunction with the following ideas or principles, often referred to as ACMEE.A: Aim of TrainingC: Content of TrainingM: Method of TrainingE: Execution of TrainingE: Evaluation.1. Aim of Training: The whole idea behind the training is to make a recruit a good salesman. Itis true that some of the qualities of a good salesman may be inherent in him, but not all qualities.It is the training which makes him to have all qualities required of a salesman. It must aim tomake him a guide to the buyer taking into account his needs, problems etc. and to make him asalesman of effective power by which an interest in the product may be aroused and a desire topurchase may be created.2. Content of Training: No hard and fast rules can be laid down as to the contents of training.The content of the training programme relates to the subject-matter of training. A trainingprogramme varies from firm to firm, because of the differences in products, markets, policies ofthe company, trainee’s ability etc. In general terms, sales training is the teaching of salesman andprospective salesmen how to do their jobs better. A good training programme facilitates thetrainee-salesman to learn and understand the following contents:(a) The knowledge of his job(b) The products(c) The company(d) The markets and consumersEDUPROZ Page 152
  • 153. Marketing(e) The competitors(f) The sales techniques(g) The routine reports etc.(a) The Knowledge of his Job: The job of a salesman is not complete, as soon as the transfer ofgoods takes place. The salesman of today carries more weight than the salesman who merelytakes orders. He must understand what the firm expects of him; what power he possesses andhow to convince the buyers about the company’s product and image. The company assignsresponsibilities and powers, with which he works as a guide to buyers by projecting the merits ofthe products and on the other hand with profit to the firm. He is expected to do services to boththe firm and the customers. He must have concrete plans as to his sales planning, meetingcustomers, sales talks, demonstration, presenting the goods, concluding sales, securing order,collecting dues, handling objections and complaints etc. Apart from these, he must be a keenobserver of market conditions, competition, consumers’ likes and dislikes etc. He should co-operate with his senior fellows. Thus, he is trained with a purpose, the aim of his appointmentbeing to know what the firm eagerly expects from him.(b) The Products: A good understanding of the product is essential. The firm must give orensure that the salesman has a thorough knowledge of the products, to be dealt with. In brief,they are:1. Raw materials used in the product.2. Manufacturing methods in brief.3. Research and development undertaken.4. Improvement brought out.5. Its suitability to the consumers.6. Its trade mark, brand, characteristics.7. Its color, weight, packaging, quality control etc.8. Selling points of the products.9. Product merits and uses to consumers.10. Limitation of the product performance.11. Its price and discounts offered.12. Service after sales and guarantee period.EDUPROZ Page 153
  • 154. Marketing13. Demonstration of its actual working.14. Availability of the products.15. Cost of operation and maintenance.16. Comparative study of similar products.17. Strength and weakness of competitors’ products.18. The position of the product in the product line.The above-said knowledge of the products is essential for a salesman so as to emerge as acreative salesman. When the salesman has a sound knowledge, he meets the public and convertsthem as buyers, in a better and more efficient way.(c) The Company: A salesman should be well-informed about the following:1) Brief history of the firm.2) Its marketing policies.3) Objectives and purposes of the firm.4) Economic and social objectives.5) Its position in the market field.6) Credit policies, sales policies, personnel policies.7) Capacity of the plant. Personnel of the firm-directors, stock-holders.9) Execution and handling of orders, sales accounting and collection methods.10) Salary, commission computation, traveling and daily allowances etc. and their paymentprocedures.11) Method of exercising control over the salesman.12) Allocation of quotas and territories.13) Marketing policies, pricing policies.EDUPROZ Page 154
  • 155. Marketing14) Handling of complaints and their adjustment. A clear-cut knowledge about the company isessential to the salesman to enable himself to work accordingly.(d) The Markets and Consumers: Information about the market is an important and essentialpart of the training programme. The salesman must have a thorough knowledge of the size of themarket, demand for the products and the area under the competitor’s side. Besides the knowledgeof the market, salesman should know about the type of customers, buying motives, likes anddislikes of the products. Different types of customers need different types of approaches. Peoplediffer widely from person to person, sex to sex, age to age, place to place etc. Persons ofdifferent types require specialized way of persuasion. The salesman must adjust himselfaccording to the nature of the customers. A blanket policy to all classes of people is notadvisable.(e) The Competition: Salesman must be given a good knowledge or comparative study of theselling activities of rivals. Study relating to comparison with the rivals as to the merits anddemerits of the product is important i.e., strong as well as weak points. The salesman shouldknow the rival firm’s policies, method of approaching the customers, how they are paid, thecustomers’ opinion, how their product is, how they fulfill their duties, the area they like ordislike, their selling-points etc.(f)The Sales Technique: The sales techniques are the essential part in sales training. After thetraining, the salesman has to be sent to the field, where he has to sell the company’s product. Hemust be given exhaustive training in “Sales Process”. The selling points must be correlated andsales talk be applied at the appropriate situation. A born salesman has to be instructed with thevarious selling techniques in detail. In short, training on the following items must be imparted.(a) Selling process.(b) Method of gaining interview from consumers.(c) Method of approach to consumers.(d) Demonstration and presentation.(e) Method of handling objections of consumers.(f) Why salesman fails in the field etc.(g)Routine Reports: Salesmen should be trained to know their routine works and submit theirreports to the firm. The report may include:(a) Amount of sales made.(b) List of new customers.EDUPROZ Page 155
  • 156. Marketing(c) Credit outstanding of customers.(d) Collection of Outstanding dues.(e) Competitor’s position in the market.(f) Maintenance of Accounts of expenses.(g) Demonstration and display of products.(h) Action taken on complaints, grievances etc.(i) The attitude of market in respect of competitors.(j) Consumers’ suggestion if any.The reports may be sent to the firm, daily, weekly or monthly etc. as directed. The salesmen areeyes and ears of the selling firm. The salesman must be aware of the method of reporting and itsimportance.Training Needs of Salesmen at Different Times:New Salesmen Need:1. Facts about the company-history, policies etc.2. Product details3. Company’s system and procedures4. Fundamentals of selling their specific products5. Moral trainingRegular Salesmen need1. The above five items2. Changes in policies and procedures3. Facts about new products4. Future plans of the company5. Knowledge to supervise othersEDUPROZ Page 156
  • 157. Marketing6. Know-how to discharge responsibility7. Attitude or moral trainingSupervisors Need:1. Skill needed by others in discharging duties2. Ability to train others3. Ability to organize4. Ability to analyze and plan5. Ability to evaluate and follow upTraining Methods:For imparting training to the salesman, different methods are being used. Broadly, these methodsmay be divided into two:1. Group Training(a) Lecture Method: An expert or a lecturer speaks to trainee-salesmen about the variousaspects of selling. It consists of oral talk in a classroom. This system is widely used. The traineeslisten to the lectures. The instructor invites questions and answers from them. To make thelecture more interesting, visual aids, demonstration, suitable examples may be added. Thissystem is more economical, and is the easiest and quickest in imparting theoretical training to agroup of salesman. But it is difficult to evaluate the effectiveness of lecture method. This methodcan be used more effectively in continuing sales training programme to provide new informationor changes in the policies of the firm. This may include seminars, demonstration etc., by expertsalesmen.(b) Audio-Visual Method: In order to supplement the lecturing (telling) method, trainingprograms include the use of visual aids, such as films, slides, posters etc., and are capable ofmaking, them more interesting.(c) Discussion Method: This is a good method. Here an actual case or an imaginary case isgiven as a problem to be solved, to the different groups. The case or the problem may be typed orprinted. Each group is asked to understand the problem and draw a conclusion. After this, thedifferent conclusions or suggestions are analyzed collectively, under the leadership of theinstructor, in drawing generalizations from each case or problem. This type of training enablesthe salesmen in correcting their own views. It is suitable for a small group. It is slow and costly.(d) Conference Method: Sales conferences and sales meeting are a kind of ‘get together’ of allthe concerned staff, weekly, fortnightly or monthly. The thoughts of various persons are pooledEDUPROZ Page 157
  • 158. Marketingin the conference. Meetings or conferences have motivating effects as the participants are givenchances for creative thinking and to express their views. To make the conference moreinteresting, dramas, demonstrations etc., are included. Topics like, sales policies, facingcompetition, publicity ideas, dealings with complaints etc., are dealt with. And these willfacilitate the participants in broadening their outlook and ideas. But this type of meetings orconferences is not suitable for new recruits.(e) Role Playing Method: Role playing is a newly developed method. The sales trainees aremade to act out roles in contrived problems. The trainer explains the situation of the problem andassigns the role of salesman and customers of different characters to the sales trainees. Each onehas to act the assigned role. The trainer watches the role played by each and discusses theirweaknesses and strong points. A few may be selected to act the play, while others may watch it.Thus, the salesman have chance to see and understand the ideas in different situations. It is notsuitable for new recruits.(f) Panel Method: Members in the panel group may be permanent. The members, who areexperts in the panel, discuss the problems, and solutions are passed to the sales-trainee groups,who may have further discussion. This system is ineffective.(g) Round Table method: It is similar to the discussion method. It consists of few members.The salesmen sit around a table along with a good discussion leader. They deal with theproblems of actual cases. Every participant takes part freely in discussing the problems andsolutions. Exchanges of new ideas take place advantageously.(h) Brain Storming Method: Under this method, more or less, similar to round tableconference, persons sit around the table. The leader presents the problems for discussion. Thesales trainees have to understand the problems and find the solutions. The solutions are analyzedby the leader or tested by the panel of experts. This method practically fetches no value.2. Individual Training(a) On-the-job Training: Under this method, a new salesman is placed under an experienced orsenior salesman who trains him. First the coach explains the sales techniques under differentsituations. He also takes the trainee along with him on his rounds and gives him chances toobserve the dealings with the customers. Doubts of the trainee are also clarified. Then the coachalong with the trainee calls on customers; the sales trainee is allowed to deal with the customerand the coach observes the performance. If any weak point or short-coming is found in the salestrainee, they discuss how to overcome them. After some time, the sales trainee becomes a trainedand independent salesman. This system is good for traveling salesman.(b) Sales Manual: It is a complied textbook. It contains details of the firm and products, jobdescription, sales policies, opinions or reports required for reference purposes etc. Generally, itcontains many problems with suggestive solutions. A copy of the book is given to a salesman togo through it and understand the ideas. It works as a ready-reckoner.EDUPROZ Page 158
  • 159. Marketing(c) Initial or Break-in Training: New recruits are given an orientation training so as to knowabout the company and its products. He may be allowed to work for some time in the firm itselfto gain sufficient information about the products. After that he is sent to work in his field.Apart from the above, salesman can also be sent to specialized educational institutions. Thetraining cost is borne by the firm. There are many institutions in India which impart theoreticaltraining along with practical work. Doors are open and firms can send their new recruits fortraining. Correspondence courses are also available for initial training. In certain cases, one canundergo training while one is fully employed. This is suitable for salesmen who are widelyscattered. There are many firms which have permanent training departments like colleges.It is important to note that even the trained or experienced salesmen need periodic training,called refresher training or follow up training. This is because of the changes in products, salespolicies, changes in consumers and market, government policies, new developments, new ideasetc.Evaluation of Training: Having trained the salesmen, the marketing manager must evaluate theusefulness or effectiveness of training, individually and collectively on the basis of theperformance of the sales personnel. Money, effort and time have been spent on training.Therefore, it is natural to expect returns. Evaluation can be made on the basis of performance ofsales executive in terms of sales volume, sales profitability, order-size, expenses etc., between,before and after training periods.Aims of Training:1. To prepare the salesman to discharge his job efficiently.2. To tell him what to do.3. To guide him how to demonstrate.4. To allow him to practice or perform it.5. To check him in his performance. • Motivating: In this stage organization identify the attributes that motivates the sales executive to perform well. Some executive may require money and others may status or control. Here organizations draw two types of incentives. They are financial incentives and non financial incentives. In financial incentives salary package, flexible expenses and fringe benefits serves as motivators. The non financial incentives include promotion, recognition and awards are included to motivate the sales executives. • Evaluating: Companies are interested to know whether sales executives are achieving the quotas set for them. To know this they ask sales executives to send the different sales reports. It may be call reports, expense reports, loss order report, travel plan and expenditure and so on. These reports information are compared against the set standards.EDUPROZ Page 159
  • 160. Marketing On the basis of evaluation report incentives are announced, if required sales executives are motivated and trained. • Compensation: sales executives are compensated on three methods. They are direct salary, direct commission and combined plans. In Direct salary method sales executives are given fixed salary per month. In case of direct commission sales executives will be working on commission basis only. For example, Life insurance agents get straight commission. The combined method is mixture of straight salary and straight commission method. In this method sales executives are paid fixed salary and also commission on the sales they make. For example, BMTC pays its conductors fixed salary and also 2% of commission on total tickets sold in a day. • Quota: These are the targets set for the sales executive for a fixed period • The quota can be of different types. They are • Sales quota: Here sales executives are asked to sell on particular volume. For example, organization may ask sales executives to sell Rs 50,000 worth of goods in a year or 5000 units in a year. • Expense quota: In this case, sales executives’ quotas are set on the basis of Sales generated and percentage of it is used for the sales expenses. For example, If sales executive X achieves Rs 1, 00,000 worth of sales and his expense ratio is 5% then he can spend Rs 5000 for his expenses. • Profit quotas: Here emphasis is on the profit margin but not on the volume. Company would like to realize better profit. Hence it always asks sales executives to get better margin from the sales. • Activity Quota: In this method sales executive should do multiple tasks. For example, Medical representatives meet the doctors in the morning and explain the product. They also meet the retailers where they try to push the product and takes promotional activities. In the afternoon they meet distributors and in the evening they sends all the report to company and checks the order status from the head office. • Combination quota: In this type of quota, any of the above five quotas can be mixed and quotas shall be set for a certain period.Learning Objective 3: Understand the process of personal sellingPersonal Selling Process1. Lead generation: Identification of prospects is first step in personal selling process.Organizations’ generates the lead through customer references, trade association, customerdirectories or through cold calling.2. Lead evaluation: All the methods used for lead generation may not be genuine. For example,after do not call registry option from telecom department, most of the cell phone users opted forit. Customer who opted for such facility belongs to middle and upper class. Hence if someexecutive uses cold calling there is doubt about its reliability. Marketer also should concentrateon whether the lead generated has necessary willingness, purchasing power and authority to buy.3. Buyer analysis: Before approaching the customer sales force should understand what productsprospects bought in the past, what products he is now using and what are his attitude and buyingEDUPROZ Page 160
  • 161. Marketinghabits towards the products. Sales personnel should set sales objectives and prepare draft forcustomer approach.4. Approaching the customer: In this step sales person should know how to meet the prospectand what is the mode to build rapport with him. For example, In Japan business meetings start inthe evening. If any company sells its product in china should not use number 8 in theirpresentation. Sales executive should decide the presentation format. Please see work book for thechecklist on sales presentation.5. Presentation and demonstration: Sales presentation starts with briefing the product,Understanding the need of the customer and changing the mode of presentation according to theneed of customer. The presentation should be vivid, simple and attracting.6. Providing solutions to customer: After the presentation and product demonstration if anyqueries or ambiguity exists, then sales executive should handle the questions properly with lot ofattentiveness and should solve the problems of customer.7. Order generation: This process is very important one in the entire personal selling process.Some time sales executives feel how to ask for the order. Such executives usually will not get theorder. Handling customer at this stage is also very difficult. Customer may get all theinformation from sales executive and then show their reluctance to buy. Sales people also faceunrealistic expectation from the customer. Sales executive should be smart enough to use orderclosing techniques. ( these techniques are discussed in the workbook)8. Follow up: Sales executives should follow up the order generated. It will help the company toidentify the customer satisfaction towards the product. It also helps them to induce the buyer togo for repeated purchase.Learning Objective 4: Identify and discuss the major forms of direct marketing.Direct Marketing1. Telephone marketing:Telephone marketing is used to sell the product directly to consumer. The growth of BPOs inIndia fuelled the development of telephone marketing. In case BPOs there are two types ofverticals exist. They are inbound call center and outbound call center. In case of inbound callcenter, customer is given a toll free number for enquiry and executives try to sell the product tosuch customers. In out bound call center employees call the customers and sell the products. Theexpansion of Indian telecommunication industry and its cheapest tariffs in the world attracteddomestic sellers to use this type of channel.2. Catalog marketing: According to Philip Kotler catalogue marketing is ‘direct marketingthrough print, video or electronic catalogs that are mailed to select customers, made available instores or presented online’. The growth of catalogue marketing in India is in nascent stage. Thenotable example in this type of marketing worldwide is J.C. Penny.EDUPROZ Page 161
  • 162. Marketing3. Kiosk marketing: organizations spread the information and keep ordering machines calledkiosks in the shopping malls and other places. For example,Ambi pur a perfume company recently organized a kiosk related marketing campaign in theNirmal life style Mumbai. Company used inflatable as shown in the pictures to attract the smallboys.Parents who came with children stopped at Kiosk and got the information from the company.The objective of campaign is to create awareness about the product among the target customers.4. Online marketing: Marketing the organization’s product on the virtual mediumIn this format buyers and sellers exchanges the products on the internet. Organizations sell theirproducts directly to consumer ( called B2C), uses trading networks or auction sites to reach newcustomers and serves to current customers ( called B2B) and encourages one customer to sell theproduct to the another customer ( called C2C).To do the business on the internet organizations create an effective website, place the ads andpromote it online, create web communities, and uses e- mail. The other sides of E- Commerceare problems of profitability and legal and ethical issues.Summary • The sales force size is decided by the work load method • The communication technique in which sales people builds the personal relationship with customers to generate the value for the organization. • According to Philip Kotler catalogue marketing is ‘direct marketing through print, video or electronic catalogs that are mailed to select customers, made available in stores or presented online’ • Organizations’ generates the lead through customer references, trade association, customer directories or through cold calling. • Evaluation can be made on the basis of performance of sales executive in terms of sales volume, sales profitability, order-size, expenses etc., between, before and after training periods. • Expansion of ACMEE is A: Aim of Training C: Content of Training, M: Method of Training, E: Execution of Training, E: Evaluation.EDUPROZ Page 162
  • 163. MarketingUnit 14 Customer Relationship Management – An OverviewIntroductionIn the marketing world managers quite often says ‘retaining customer is more important thanacquiring one’. We will examine the importance of this sentence. The organization usescommunications tools to make their product and brand aware among the consumer. It uses itssupply chains and human resources to sell their products. Each stage costs for the company. Inthis competitive world organizations want to reduce the cost and develop the database whichhelps in creating loyalty programs. Therefore it is very essential for the organizations to usesoftware to pile up big database of customer. Many Indian companies like Infosys, Wipro andothers started offering CRM software to companies. The benefits of CRM software are quicker,better, quality, and timely services to the customers. This increases the word of mouthcommunications and reduces the cost of mass media.Learning Objective 1:Explain the meaning, need and relevance of customer relationship management.Relationship Marketing Vs. Relationship ManagementThe relationship marketing approach considers customers as insiders to the business and aims atbuilding a long term and never-ending relationship with them. The focus of relationshipmarketing approach centers on developing ‘hard core loyal’ customers with the idea of retainingthem forever. A high degree of customers’ contact, commitment and services are maintained.The relationship marketing approach has gradually taken the shape of customer relationshipmanagement. Relationship marketing has a narrow focus on the customers and focuses only onthe marketing function of the organization concerned. On the other hand, customer relationshipmanagement focuses more widely on customers and on the entire functions connected with valuecreation and delivery chain of the organization concerned. The customer relationshipmanagement is a process of acquiring customers by understanding their requirements, retainingcustomers by fulfilling their requirements more than their expectations and attracting newcustomers through customer specific strategic marketing approaches. The process invites totalcommitment on the part of entire organization in evolving and implementing relationshipstrategies that would be rewarding to all concerned.Organizations have preferred the usage of the term ‘Customer Relationship Management’ ratherthan ‘Customer Relationship Marketing’. However, in practice, both these terms are usedinterchangeably.Definitions of Customer Relationship ManagementBerry defines CRMS as “attracting, maintaining and– in multi-service organizations—enhancing customer relationships.”EDUPROZ Page 163
  • 164. MarketingBerry and Parasuraman define CRMS as “attracting, developing and retaining customerrelationships.”In industrial marketing, Jackson defines CRMS as “marketing oriented toward strong, lastingrelationships with individual accounts.”Doyle and Roth define CRMS as “the goal of relationship selling is to earn the position ofpreferred supplier by developing trust in key accounts over a period of time.”The sequence of activities for performing relationship marketing would include developing coreservices to build customer relationship, customization of relationship, augmenting core serviceswith extra benefits, and enhancing customer loyalty and fine-tuning internal marketing topromote external marketing success.Christopher considers relationship marketing as “a tool to turn current and new customers intoregularly purchasing clients and then progressively moving them through being strong supportersof the company and its products to finally being active and vocal advocates for the company.”Relationship marketing is in essence “selling by using psychological rather than economicinducements to attract and retain customers. It seeks to personalize and appeal to the hearts,minds and purses of the mass consumers.”- James J. LynchThus, “Customer Relationship Management is about acquiring, developing and retainingsatisfied loyal customer; achieving profitable growth, and creating economic value in company’sbrand,”From the above definitions, it could be concluded that Customer Relationship Managementrefers to all marketing activities directed towards establishing, developing, and sustaining longlasting, trusting, win-win, beneficial and successful relational exchanges between the focal firmand all its supporting key stakeholders.CRM is not a new concept but an age-old practice, which is on the rise because of the benefits itoffers, especially in the present marketing scenario. So, CRM today is a discipline as well as aset of discrete software and technology which focuses on automating and improving the businessprocess associated with managing customer relationships in the area of sales, marketing,customer service and support. CRM helps companies understand, establish and nurture long-termrelationships with clients as well as help in retaining current customers. The most important stepthat an organization has to take in the direction of CRM is to create an interdisciplinary team toreview how the organization interacts with each customer and determine how to improve andextend the relationship.Learning Objectives 2: Mention the forms of relationship management.Forms of Relationship ManagementEDUPROZ Page 164
  • 165. MarketingAn extensive review of literature reveals ten different but interrelated forms of relationshipmarketing as mentioned below:1. The partnering involved in relational exchanges between manufacturers and their externalgoods suppliers.2. Relational exchanges involving service providers, as between advertising or marketingresearch agencies and their respective clients.3. Strategic alliances between firms and their competitors, as in technology alliances; co-marketing alliances and global strategic alliance.4. Alliances between a firm and non-profit organizations, as in public-purpose partnerships.5. Partnerships for joint research and development, as between firms and local, state, or nationalgovernments.6. Long-term exchanges between firms and ultimate customers, as particularly recommended inthe services marketing area.7. Relational exchanges of working partnerships as in channels of distribution.8. Exchanges involving functional departments within a firm.9. Exchanges between a firm and its employees, as in internal marketing.10. Within firm relational exchanges involving such business units as subsidiaries, divisions orstrategic business units.These different forms of relationship marketing both jointly and severally influence theemergence and growth of enduring long-term dyadic, triadic network, and web of relationshipsbetween the focal firm and its supporting key stakeholders.Managing Customer Loyalty and DevelopmentManaging customer-development process is one of the critical dimensions of relationshipmarketing. Basically it involves a twin focus-customer catching, and customer keeping.‘Customer catching’ is the process of attracting new customers (inviting new blood), while thecustomer keeping aims at the process of retaining the existing ones (encouraging old blood).Customer – Development Process:EDUPROZ Page 165
  • 166. MarketingTo understand customer relationship management, we must first examine the process involved inattracting and keeping the customers. The starting point is suspects. Suspect is everyone whomight conceivably buy the product or service. The company looks hard at the suspects todetermine who the most likely prospects are. The prospects are those people who have a strongpotential interest in the product and the ability to pay for it. Disqualified prospects are thosewhom the company rejects because they have poor credit or would be unprofitable. Thecompany hopes to convert many of its qualified prospects into first- time customers, and to thenconvert those satisfied first-time customers into repeat customers. Both first – time and repeatcustomers may continue to buy from competitors as well. The company then acts to convertrepeat customers into clients. Clients are those people who buy only from the company in therelevant product categories. The next challenge is to turn the clients into advocates. Advocatesare those people who praise the company and encourage others who buy from it. Ultimatechallenge is to turn advocates into partners, where the customer and the company work activelytogether. At the same time, it must be recognized that some customers will inevitably becomeinactive or drop out for various reasons causing relationships to dissolve. The company’schallenge is to reactivate the dissatisfied customers through customer win-back strategies. It isoften easier to re-attract ex-customers than to find new ones. Unfortunately, the traditionalmarketing approach with its emphasis on making sales rather than building relationships fails toachieve this.Learning Objective 3: To cite the reasons for losing customers by organizations.Reasons behind Losing Customers by OrganizationsIt is said that cost of attracting a new customer is estimated to be five times the cost of keeping acurrent customer happy. It requires a great deal of effort to induce satisfied customers to switchaway from their current suppliers. Unfortunately, most marketing theory and practice center onthe art of attracting new customers rather than retaining existing ones. The emphasis traditionallyEDUPROZ Page 166
  • 167. Marketinghas been on making sales rather than building relationships. The focus has been on pre-sellingand selling rather than on caring for the customer afterwards. Today, however, more companiesare recognizing the importance of satisfying and retaining the current customers.Today’s companies must pay closer attention to their defection rate and take steps to reduce it.The possible reasons for customer defection would include:Price related reasons: A customer tries to match the price to pay for acquiring a brand and thevalue the brand could generate. If the customer perceives a mismatch between the price and thevalue, he would opt for a competitor’s brand. Also, if the price of brand for any reason goesbeyond his reach, he would switch over to a low priced brand. Thus, the role of price in customerretention is very significant.Product related reasons: In view of technological advancement, the new brand which makesmarket entry would be capable of offering better performance as compared to the alreadyexisting brand. This would induce the customers to make a brand switch over.Services related reasons: The customer’s concentration is not only on the brand, but also on theaccompanying services offered at three different stages–pre-sales, during sales and after sales.Any dissatisfaction as regards to services would cause the customer to move away from thebrand.Benefit related reasons: The customers may be attracted by various augmented benefits offeredby the competitors. Such benefits may be more appealing and induce customers towards brandchanges.Competitor related reasons: Technological advancement, attractive offers, value added services,etc., offered by competitors would also draw the attention and induce customers towards brandswitching.Personal reasons: On the personal front, a customer would become a brand defector due to thefollowing reasons:· Moved away from the market area where the brand is sold.· Role changes in life cycle and consequently leading changes in brand preference.· Anger, disgust, distress developed within the process of product delivery.· Sentimental reasons.· Influence of other members of the family.The organization must periodically analyze the reasons behind losing customers and accordinglydevelop a customer retention plan that would serve as the basic tool towards building a strongand long lasting relationship with customers.EDUPROZ Page 167
  • 168. MarketingLearning Objective 4: Bring out the significance of customer relationship management.Significance of Customer Relationship Management· Reduction in customer recruitment cost.· Generation of more and more loyal customers.· Expansion of customer base.· Reduction in advertisement and other sales promotion expenses.· Increase in the number of profitable customers.· Easy introduction of new products.· Easy business expansion possibilities.· Increase in customer partnering.The customers are also benefited by relationship marketing in terms of improved service quality,personalized care, reduction of customer stress, increased value for money, customerempowerment, etc.In today’s highly competitive business world, CRM is becoming the ultimate solution for both,customers as well as organizations. Any organization must have a clear idea as to why it loses itscustomers. This would help informing proactive and reactive measures to minimize or avoid thesame. This chapter mainly focuses on the causes responsible for losing customers and deals atlength, the various strategies that can be employed to build and maintain long term relationshipwith customers, enabling a reader to consolidate relevant strategies suitable to his businesscontext.Traditional Organizational Chart Vs Modern Customer – Oriented Company Organization ChartMany managers who believe that the customer is the key to profitability considered thetraditional organization chart as in fig. (a) – a pyramid with the president at the top, managementEDUPROZ Page 168
  • 169. Marketingin the middle, and front-line people (sales and service people, telephone operators, receptionists)and customers at the bottom – to be obsolete. Master marketing companies know better; theyinvert the chart, as shown in fig. (b) above. At the top of the organization are the customers. Nextin importance are the front-line people who meet, serve, and satisfy the customers. Under themare the middle managers, whose job is to support the front-line people so they can serve thecustomers well. Finally, at the base is top management whose job is to support the middlemanagers. We have added customers along the sides of Fig. (b) to indicate that all the company’smanagers are personally involved in knowing, meeting, and serving customers.Broadening the concept of Relationship MarketingCompanies should realize that there are multiple constituencies important to organizationalsuccess other than customers. The stakeholders of an organization would include: investors, thefinancial community, vendors and suppliers, employees, competitors, the media, neighbors andcommunity leaders, special interest groups, and government agencies. These stakeholders canaffect and be affected by a company’s marketing programme. Adopting an integrated view ofmultiple constituencies has bottom-line implications. Kotter and Heskett (1992) found that firmsthat emphasized the interests of three constituencies–customers, employees and stakeholders –outperformed those that emphasized only one or two.Figure14.1. Showing Integrated View of Multiple Corporate ConstituenciesEDUPROZ Page 169
  • 170. MarketingIntegration of Soft and Hard Versions of Relationship MarketingAt this juncture, it is necessary to clarify and elaborate the ’soft’ and ‘hard’ versions ofrelationship marketing. Soft version of relationship marketing is more reminiscent of ‘humanisticrelationship development’, whereas the hard version reflects a ‘utilitarian instrumentalism’. Thesoft version lays stress on the term ‘relationship’, thus conjuring up echoes of the relationshipmanagement. Because it strongly advocates that all management is basically relationshipmanagement and all managers are relationship managers. It invariably focuses on‘developmental humanism’ as a foundation to build and nurture enduring relationships inmarketing exchanges. On the other hand, the hard version puts the stress on the idea of‘marketing’, that is something to be used dispassionately and in a formally rational manner.Summary· The focus of relationship marketing approach centers on developing ‘hard core loyal’ customerswith the idea of retaining them forever.· The customer relationship management is a process of acquiring customers by understandingtheir requirements, retaining customers by fulfilling their requirements more than theirexpectations and attracting new customers through customer specific strategic marketingapproaches.· Customer Relationship Management is about acquiring, developing and retaining satisfied loyalcustomer; achieving profitable growth, and creating economic value in company’s brand,”· CRM is becoming the ultimate solution for both, customers as well as organizations.Unit 15-International Marketing ManagementIntroductionIn the previous chapters our study was focused on how marketing strategies are formulated,implemented and controlled in the Indian marketing. After the globalization and liberalization ofthe Indian economy in the year 1991, Indian enterprises started facing the competition from theglobal brands. In this context it has become inevitable for all the companies small or big toanalyze the international marketing environment and strategies to adapt to it. The companieswhich were operating in the domestic market are also aggressively redrafting their policies andstrategies to suit the global needs. Companies express their desire to enter into the internationalmarket because of the following reasons 1. It identified potential in the foreign markets for its products.EDUPROZ Page 170
  • 171. Marketing 2. The domestic market is matured. 3. Existing customers demand for the international availability of organization’s products and services.Learning Objective 1: Understand the nature of international marketNature of International Marketing ConceptInternational marketing is defined as “The performance of business activities designed to plan,price, promote and direct the company’s flow of goods and services to consumers or users inmore than one nation for a profit”.A company that wants to sell their product in other than domestic market should understand theenvironmental factors, consumer behavior, market forces and other characters relevant to theinternational market. After understanding the definition several questions may arise in your mindlike why marketer should go the international market? And what is the difference betweeninternational marketing and domestic marketing. As we discussed in the introduction partcompanies enter into the international market to tap the potential, to support the customerrequirements or to avoid the unprofitable domestic market. The difference between domesticmarketing and international marketing are listed below. InternationalCharacteristics Domestic Marketing Marketing 1. Culture Single culture and in some cases Multi culture multi culture. 1. Data accessibility Very difficult Easy 1. Data reliability Very Low High 1. Control difficult Relatively easy. 1. Consumer Vary from country to preferences Vary in small extent country 1. Product mix Adaptability required Standardization required. 1. Business operation More than one country Home country only 1. Currency exposure Required only if it into the Required importing.EDUPROZ Page 171
  • 172. MarketingAdvantages of international marketing: 1. International marketing provides growth opportunities for the companies whose domestic market is maturing. For example, General motors focusing its strategies on the emerging markets like India 2. It brings the major portion of sales and profits to the company. For example, Unilever’s major revenue comes from the Asian markets. 3. It generates employment: Indian textile sector which exports majority of the product produced is large employer after agriculture and retail. 4. International market also acts as survival place for the companies. If one market become unattractive either they establish their operation in another country or outsource the major functions to streamline the businesses. 5. It helps in improving the standard of living in the country.The International Marketing ConceptThe marketing concept is the idea that a firm should seek to evaluate market opportunities beforeproduction, assess potential demand for good, determine the product characteristics desired bythe consumers, predict the prices consumers are willing to pay and then supply goodscorresponding to the needs and wants of target markets. Adherence to marketing concept meansthe firm conceives and develops products to satisfy consumer wants. For international marketingthis means the integration of the international side of the company’s business with all aspects ofits operations and the willingness to create new products and adapt existing products to satisfythe needs of world markets. Products may have to be adapted to suit the tastes, needs and othercharacteristics of consumers in specific regions, rather than it being assumed that an item whichsells well in one country will be equally successful elsewhere.Learning Objective 2: Analyze the appropriate entry strategies for the firm in internationalmarket.International Market Entry StrategiesOrganizations that plans to go for international marketing should answer some basic questionslike a. In how many countries the company would like to operate? b. What are the types of countries it plans to enter?To answer the above questions companies evaluate each country against the market size, marketgrowth, and cost of doing business, competitive advantage and risk level.Checklist for country evaluationCharacteristics weightages scoreEDUPROZ Page 172
  • 173. Marketing 1. Political rights 1. Civil liberties 1. Control of corruption 1. Government effectiveness 1. Rule of law 1. Health expenditure 1. Education expenditure 1. Regulatory quality 1. Cost of starting a business 1. Days to start a business 1. Trade policy 1. Inflation 1. Fiscal policy 1. Consumption 1. CompetitionOnce the market is found to be attractive companies should decide how to enter this market.Companies can enter international market from any one of the following strategies. They are a. Exporting b. Licensing c. Contract manufacturing d. Management contract e. Joint ownershipEDUPROZ Page 173
  • 174. Marketing f. Direct investmentExporting is the techniques of selling the goods produced in the domestic country in a foreigncountry with some modifications. For example, Gokaldas textiles export the cloths to differentcountries from India. Exporting may be indirect or direct. In case of indirect exporting, companyworks with independent international marketing intermediaries. This is cost effective and lessrisky too. Direct exporting is the techniques in which organization exports the goods on its ownby taking all the risks. Maruti udyog limited India’s leading car manufacturer exports its cars onits own. Company can also set up overseas branches to sell their products. Adani exports anotherleading exporter from India has international office in the Singapore.Licensing: According to Philip Kotler licensing is a method of entering a foreign market inwhich the company enters into an agreement with a license in the foreign market, offering theright to use a manufacturing process, trademark, patent, or other item of value for a fee orroyalty’. For example, torrent pharmaceuticals has license to sell the cardiovascular drugs ofChinese manufacturer Tasly. Licensing may cause some problems to the parent company.Licensee may violate the agreement and can use the technology of the parent company.Contract manufacturing: company enters the international market with a tie up betweenmanufacturer to produce the product or the service. For example, Gigabyte technology hascontract manufacturing agreement with D- link India to produce and sell their mother boards.Another significant manufacturer is TVS electronics; it produces key boards in its own name aswell as for other companies too.Management contracting: In this type a company enters the international market by providingthe know how of the product to the domestic manufacturer. The capital, marketing and otheractivities are carried out by the local manufacturer hence it is less risky too.Joint ownership: A form of joint venture in which an international company invest equally witha domestic manufacturer. Therefore it also has equal right in the controlling operations. Forexample, Barbara a lingerie manufacturer has joint venture with Gokaldas images in India.Direct Investment: In this method of international market entry Company invest inmanufacturing or assembling. The company may enjoy the low cost advantages of that country.Many manufacturing firms invested directly in the Chinese market to get its low cost advantage.Some governments provide incentives and tax benefits to the company which manufactures theproduct in their country. There is government restriction in some countries to opt only for directinvestment as it produces the jobs to the local people. This mode also depends on the countryattractiveness. It may become risky if the market matures or unstable government exists.Learning objective 3: Examine the approaches to the international market.Approaches To International MarketingThe orientation towards the market varies with a company to company. Each one adoptsdifferent approaches on the basis of their expertise or strength of the company. Some companiesEDUPROZ Page 174
  • 175. Marketingadapt same product for all the markets while others differentiate to each countries. In this contextwe would like to know what are the common approaches adopted by the company in theinternational marketing. The three common approaches used in the international market are a. Domestic market extension approach. b. Multi domestic market orientation. c. Global market orientation.Domestic market extension approach: Companies that adopt this strategy thinks internationalmarkets are secondary to its domestic markets.Multi domestic market orientation: In the international market each country has its uniqueness.Their preference varies. The Consumer profile is different from domestic operation. Companiesdevelop different market plans for such markets. For example, In France men use morecosmetics than the women where as in India women use more cosmetics than men. A cosmeticscompany should change the product positioning differently.Global market orientation: In this approach company thinks that products’ needs are universal innature irrespective of country they work. Here company tries to standardize their products orservices. For example, Sony walkman is same across the world. The product informationbrochure contains explanation in different languages of different countries. The final product issame in all the countries.Learning Objective 4: Asses the importance of components of marketing mixes in theinternational market.International Product PolicyCustomer satisfaction towards company offerings will be positive if they able to meet theirneeds. Therefore product planning became integral part of international marketing plan. Thedistinctiveness in the different countries forces companies to think in different ways of productofferings and support promotion programs. These organizations adopt five different types ofproduct strategies in the international markets. They are 1. Product extension 2. Communication adaptation 3. Product adaptation 4. Product and communication adaptation 5. Product invention. 1. Product extension is marketing a product in the international market without change in the product and promotion activities. Microsoft office 2007 and Microsoft servers are similar to USA market and communication is also unaltered.EDUPROZ Page 175
  • 176. Marketing 2. Communication adaptation: Company does not change the product but adopt the different communication strategy in the foreign market. Colgate sells its toothpaste in a same way all over the world. Their communication strategy varies in different countries. In India and USA white teeth are preferred by the consumers while in Indonesia yellow teeth are preferred. Hence Colgate changed its communication strategies for these countries. 3. Product adaptation: Marketer understand the different needs of the consumer and adopts the product according to the local tastes but keeps the communication strategies same. Majority of the Indian consumers are vegetarians. KFC started selling vegetarian burgers in India though it is famous for chicken. The communication strategies of KFC remain same all over the world. 4. Product and communication adaptation: The product will be modified according to the needs of local market. Nokia world’s largest cell phone manufacturer increased the volume options in the India as most of the places are overcrowded. Consumers in India are not so familiar with English language. Hence Nokia changed its promotion to regional languages also. This is adoption of product and communication by the company. This strategy is also known as dual strategy. 5. Product invention: Here, marketer develops entirely new product to suit the requirements of the local customers. Nokia manufactured 1100 cell phone only for the Indian market and promoted it as made for India. In this strategy company may adopt communication strategy same as in the other country or change according to the local market.International Promotions PolicyCommunication in the international market is very challenging. There exist many languages anddialects and different perceptions about communication strategies. In some countries there areregulations on the advertisements and sales promotions. In India alcohol advertisements arebanned. In this section we are discussing what the communication strategies the company shouldadapt are and what are the barriers to it. The marketer may face the language barrier, culturebarrier, legal barriers in some countries. In Saudi Arabia using women in advertisements areprohibited. Vodafone has to change its promotion program to Tamil in Tamilnadu, a state inIndia. Organizations also face the problem of media and production and cost in differentcountries.Global promotional program will have three set of objectives. First, setting the global objectives,Secondly, formulating the regional objectives and finally setting the local objectives. The mediadecisions depend on the objectives of the promotion program. As we discussed in the promotionunit media budget in the international marketing is also determined by percentage sales method,competitive parity, resource allocation and objective and task method.Global promotion program may be standardized or adapted. Standardization will help thecompany to reduce cost and add the value to the product. The pitfall of standardization is localcustomers can not understand global messages. One of the famous companies in the world wasshowing its advertisements on supply chain management software in India in the same way as inthe USA. The advertisement evaluation results were very strange. People can recall only thehorse word in the advertisement. As we discussed in the earlier section of the unit company canEDUPROZ Page 176
  • 177. Marketingadapt its communication strategy only to the local market or both product and communicationcan be adapted.Advertisements will have modifications. If marketer wants to sell their products in Japan shouldnot use white color as it is considered only for mourning. Communication should not containanything using cow in the Nepal as it is considered as sacred. The following examples of theunited colors of Benetton and Microsoft depict the different advertisements strategies adopted bythem.EDUPROZ Page 177
  • 178. MarketingGlobal marketer also uses sales promotion, Public relation and direct marketing techniques tocommunicate it to the consumer. Amway direct marketing company adapts same strategy inIndia, while Cadbury and Microsoft also use Public relation and sales promotion techniques tocommunicate the messages.Sales promotion covers the issue of coupons, the design of competitions, special offers, anddistribution of free samples. International businesses wishing to employ sales promotions forcross border campaigns face a number of serious practical difficulties, because in many nationsthe use of certain sales promotion techniques is regarded as unfair competition and as such issubject to stringent legal control. Indeed conflicting laws sometimes apply to these matters invarious countries. Money off vouchers is legal in Spain but not in Germany; Lower price for thenext purchase are legal in Belgium but illegal in Denmark. In Germany and certain othercountries free gifts are forbidden if they constitute a genuine incentive to buy.International BrandingBrand names used in foreign markets need to be internationally acceptable distinct and easilyrecognizable, culture free, legally available and not subject to local restrictions. Brand namecommunicates its messages and appeals to consumers. They create the stimulus in the minds ofconsumer to purchase the product. Brand name should be small, easy to pronounce and shouldhave proper meaning. Such brand names can be used in several countries simultaneously forfamily branding and may be s8upported within the advertisements by a wide variety of pictorialillustrations.EDUPROZ Page 178
  • 179. MarketingBrand positioning: As we discussed in the product standardization the debate exist for brandcommunication standardization or adaptability. We will discuss the various factors that influencethe opting the single or multiple positioning strategies. a. The influence of local substitutes on the foreign brand b. The coverage of the brand( mass versus niche) c. Acceptability for product uniqueness in all purchase points d. Brand name suitability in the particular market.Now we will discuss the advantages of brand standardization in the global markets. 1. Firms’ concentration on the positioning will be effective. 2. It helps in saving the costs. 3. A standardized product and standardized promotion helps to have same packaging.But all the companies will not go for standardizing the brand. Standardization of brandingstrategies has its own limitations. They are 1. Stereotype image of the national products (Germany for engineering, china for low price product). If the customer thinks that any product coming out of the china is of low price and low quality whatever the effort the Chinese company does in other market will fail. 2. Patriotism of the people and their perception that their national brand s is superior to others.Brand valuation in the international markets: Brand valuation in one country helps it to leveragethe same brand in the other country. It also helps it to acquire different brands in the internationalmarkets. Brand valuation can be done on the following factors 1. Brand image in the market. 2. Consumer lifestyle and brand influence 3. Branded sales versus unbranded sales 4. Brands contribution to the corporate image. 5. Length of brand loyalty. 6. Market share of brand in each category it operates. 7. Adaptability and standardization of the brand in different countries. 8. Brands ability to be extended to other lines or category.The top 10 brands of 2007(Source: Business week)INTERBRAND TAKES lots of ingredients into account when ranking the world’s most valuablebrands. To even qualify for the list, each brand must derive about a third of its earnings outsideEDUPROZ Page 179
  • 180. Marketingits home country, be recognizable outside of its base of customers, and have publicly availablemarketing and financial data. One or more of those criteria eliminate such heavyweights as Visa,Wal-Mart, Mars, and CNN. Interbrand doesn’t rank parent companies, which explains whyProcter & Gamble doesn’t show up. And airlines are not ranked because it’s too hard to separatetheir brands’ impact on sales from factors such as routes and schedules.BUSINESSWEEK CHOSE Interbrand’s methodology because it evaluates brands much the wayanalysts value other assets: on the basis of how much they’re likely to earn in the future. Theprojected profits are then discounted to a present value, taking into account the likelihood thatthoseearnings will actually materialize.THE FIRST STEP IS figuring out what percentage of a company’s revenues can be credited to abrand. (The brand may be almost the entire company, as with McDonald’s Corp., or just aportion, as it is for Marlboro.) Based on reports from analysts at J.P. Morgan Chase, Citigroup,and Morgan Stanley, Interbrand projects five years of earnings and sales for the brand. It thendeducts operating costs, taxes, and a charge for the capital employed to arrive at the intangibleearnings. The company strips out intangibles such as patents and management strength to assesswhat portion of those earnings can be attributed to the brand.FINALLY, THE BRAND’S strength is assessed to determine the risk profile of those earningsforecasts. Considerations include market leadership, stability, and global reach—or the ability tocross both geographic and cultural borders. That generates a discount rate, which is applied tobrand earnings to get a net present value. Business Week and Interbrand believe this figurecomes closestto representing a brand’s true economic worth.Brand Country of origin Sector Valuation(in Million$) 1. Coca cola USA Beverages 65,324 1. Microsoft USA Software 58,709 1. IBM USA Software 57,091 1. GE USA Diversified 51,569 1. Nokia Finland Telecommunication 33,696 1. Toyota Japan Automobiles 32,070 1. Intel USA Computer Hardware 30,954 1. McDonalds USA Restaurants 29,398EDUPROZ Page 180
  • 181. Marketing 1. Disney USA Media 29,210 1. Mercedes Germany Automotive 23,568Learning Objective 4: To find the importance of Country of origin effects.Country of origin is the country of manufacture, production, or growth where an article orproduct comes from. There are differing rules of origin under various national laws andinternational treaties.Country of origin as a marketing strategyFrom a marketing perspective, “country of origin” gives a way to differentiate the product fromthe competitors. It is believed that the country of origin has an impact on the willingness to buy aproduct, and studies have shown that consumers may tend to have a relative preference toproducts from their own country or may tend to have a relative preference for or aversion tocertain products that originate from certain countries. The effect of country of origin is howeverdebated as studies have shown that the origin of design (for instance Apple computers or Nikeshoes) can be more important than the country of origin.Ambiguous country of origin labelingWhile many products made within the European Union carry the country of origin label ormarking “Made in EU” or “Made in EC”, some non-EU manufacturers in Europe and someothers outside the continent of Europe use ambiguous markings, such as “Made in Europe”(made anywhere else in Europe, but not in the EU or EC; this may constitute any countrygeographically close to Europe or the EU that also wishes to be in) or “Made for Europe” (madeanywhere else in the world, but not in Europe or the European Union). These tactics appear to beintended for consumer deception, whereby a buyer not proficient in English may come to believefrom looking at the label that the non-EU product he is interested in is made in the EU.Country of origin in international tradeWhen shipping products from one country to another, the products may have to be marked withcountry of origin, and the country of origin will generally be required to be indicated in theexport/import documents and governmental submissions. Country of origin will affect itsadmissibility, the rate of duty, its entitlement to special duty or trade preference programs,antidumping, and government procurement.Today, many products are an outcome of a large number of parts and pieces that come frommany different countries, and that may then be assembled together in a third country. In thesecases, it’s hard to know exactly what the country of origin is, and different rules apply as to howto determine their “correct” country of origin. Generally, articles only change their country ofEDUPROZ Page 181
  • 182. Marketingorigin if the work or material added to an article in the second country constitutes a substantialtransformation, or, the article changes its name, tariff code, character or use (for instance fromwheel to car). Value added in the second country may also be an issue.International PricingDetermination of selling prices:The price of an organization may change for its output depends on many factors. They are a. Customer perception towards the product. b. Total demand for the good c. The degree of competition in the market. d. Competitors price reactions e. Substitute products and its effect on the product. f. Products brand image g. Cost of production and distribution. h. Price elasticity of demand for the productSpecial problems apply to international pricing particularly in relation to lack of information,uncertain consumer response, and foreign exchange rate influences and the difficulty ofestimating all the extra costs associated with foreign sales. These extra costs might includetranslating and interpreting fees, export packaging and documentation costs, insurance payments,clearing agents’ fees, pre-shipment inspection and many other items. Credit period are very longin some countries. Government price controls apply in certain states. A company may adoptpenetration pricing, skimming pricing, cost plus pricing and product life cycle pricing. (Asdiscussed in Pricing Unit)Transfer pricing:Transfer pricing means the determination of the prices at which an MNC moves goods betweenits subsidiaries in various countries. A crucial feature of large centralized MNCs is their ability toengage in transfer pricing at artificially high or low prices. To illustrate, consider an MNC whichextracts raw materials in one country, uses them as production inputs in another, assembles theparty finished goods in a third and finishes and sells them in a fourth. The governments of theextraction, production, and assembly countries will have sales or value added taxes; while theproduction assembly and finished goods countries will impose tariffs on imports of goods.EDUPROZ Page 182
  • 183. MarketingSuppose the MNC values its goods at zero prior to their final sale at high prices. The governmentof the extraction country receives no revenue from sales taxes because the MNC’s subsidiary inthat country is selling its output to the same MNC’s subsidiary in the production country at aprice of zero. Equally the production country raises no income from import tariffs on thistransaction because the raw materials are imported at zero prices! The only tax the MNC pays isa sales tax in the last country in the chain. Transfer pricing at unacceptably low values has beenmajor problem for many developing nations. Sometimes, therefore the government of thecountry in which an MNC operated the government officially shall declare the price at which theMNC exports its output, not an employee of the MNC itself. Thus the government of hostcountry will ensure that it receives an appropriate amount of sales tax. Similarly importingcountries might impose quantity based instead of price based import duties to ensure reasonablerevenues from taxes on imports of an MNC’s goods.Tax considerations aside, transfer prices need to be realistic in order that the profitability ofvarious international operations may be assessed. Possible criteria for setting the transfer priceinclude 1. The price at which the item could be sold on the open market. 2. Cost of production or acquisition. 3. Acquisition/ production cost plus a profit mark up 4. Senior management’s perceptions of the value of the item to the overall international operations. 5. Political negotiations between the units involved.Normally the solution adopted is at which maximize profits for the company taken as a wholeand which best facilities the parent control over subsidiaries operations. Arm’s length pricing isthe method generally preferred by national governments and is recommended in a 1983 code ofpractice on the subject drafted by the organization for economic cooperation and development.Note how subsidiary that charges a high transfer price will accumulate cash which might beinvented more profitability in the selling country than elsewhere. Problems with setting arealistic transfer price as follows. 1. Differences in the accounting systems used by subsidiaries in different countries. 2. Executives in operating units deliberately manipulate the transfer to enhance the book value of subsidiary profits. 3. Disparate tax rates and investment subsidy levels in various countries. 4. Possible absence of competition in local markets at various stages in the supply chain. Thus a market price in such an area may be artificially high in consequences of the lack of local competition. 5. There might not be any other product directly comparable to the item in question, again making it difficult to establish a market price. 6. If the price is set too high level the selling unit will be able to attain its profit targets too easily and lead perhaps to idleness and inefficiency in the selling subsidiaries.EDUPROZ Page 183
  • 184. MarketingSummary • International marketing is defined as “The performance of business activities designed to plan, price, promote and direct the company’s flow of goods and services to consumers or users in more than one nation for a profit”. • International market entry strategies are exporting, licensing, contract manufacturing, management contract, direct investment and joint ownership. • International marketing approaches are of three types. They are domestic market orientation, multi domestic market orientation and global market orientation. • Country of origin is the country of manufacture, production, or growth where an article or product comes from. There are differing rules of origin under various national laws and international treaties.Transfer pricing means the determination of the prices at which an MNC moves goods betweenits subsidiaries in various countries.EDUPROZ Page 184